EP28 - Owner’s Voices

In this episode. Makenzie interviews leaders from five diverse ESOP companies as they share their paths to employee ownership. Each organization offers a unique perspective on the transition process, the challenges and opportunities along the way, and the lasting impact ownership has had on their culture and performance. 

Transcript

[0:10] Hi everyone welcome to episode 2 of a 4-part series on employee ownership in light of employee ownership month. I'm McKenzie worth an ESOP advisor and co-host of the journey to an ESOP and Beyond podcast. This episode is designed with you in mindif you're here exploring esops who better to hear from than Founders who have walked this path ahead of you, we've asked 5 owners a series of questions to provide wisdom and insight directly to you, today you'll be hearing from Mark Farrell from aw FarrellArt Smith from DB engineeringSteve Thorton from Moana research. Tyler Nelson from revampand Todd Ballard from SPG Constructionso let's get into it.

[0:58] Our first question is what were you thinking or feeling when you first heard about esopsI first heard about esops in 2006 when I was going to MBA school I was getting my MBA in sustainability and social justice and a lot of the professors and people associated with the program had uh employee ownership on their mind as well and esops were the common 1 that people talked about at the time so that was the first time I was exposed almost 20 years ago and I thought it was such a great concept at the time it's an great opportunity to to expand the number of people that can create wealth through a company and my familiarity before that was primarily with business owners and their Partners who wound up being the the beneficiaries of all the wealth generation in a company and a lot of family members and um I thought and when I heard about this uh the idea of an ESOP it really uh made a lot of sense to me and I also thought it naturally moved a company to favor strategies and tactics that improved employee happiness which from my perspective it was I had been coming just about 20 years in a business that was heavily motivated on ummoney and drive and at the expense of people.

[2:23] And was looking for something a lot more uh keeping people oriented and employee or oriented and and ESOP made a lot of sense um it was a great concept right from the first day I heard about it. First confused because I'd never really heard of it you know the first time it came on our radar it was brand new. Umbut once we started to understand what it was and sort of the overlap and. Our vision for for our company uh our values as individuals uh and the principles the business principles we believe in uh confusion kind of. Transitioned into excitement and then that kind of was the over overarching feeling you know all the way up until today because it we felt like it was a good fit for for us in our organization.

[3:11] And uh been talking about exit strategies and transition strategies to um, allowing our our our employees to have some type of ownership in our business and um.

[3:27] So when we heard about esops. At first we just we had no idea what it was I mean we had heard about it but um we really didn't understand the details of of how the the uh transaction would happen and so um.

[3:43] Uh we were cautiously optimistic but you know really uh without any, real information on it uh it didn't seem like something that could happen and and we were concerned about how could the company pay back that uh that it assumed in order to to buy the stock and so yeah those were probably the first things that we thought about was how could it happen how could it um, how can I actually take place uh and who would have to be involved with it to actually make the the the ESOP happen.

[4:18] It's like wait I pay myself for my own shares how does that make any sense, why wouldn't I just pay myself the profitsbut I want to know more uh because there must be something more here that companies like em chose to do it um. And obviously I love that the shares go to the employees at no cost and that there's no change in control or decision-making.

[4:48] What do you wish you had known before you started the process. Again having thought about esops even before the foundation of Moana research you could say that we were a pre-op. At least. Over a dozen years from 2014 to 2025 when we began studying in earnestum and ultimately consummating and a 30% ESOP in 2025.

[5:17] Truth is um.

[5:22] We we had an opportunity to learn a lot along the way so we didn't feel like um. We were really missing anything except for the things that you learn when you finally do something that you've been thinking about doing. That we had known um.

[5:41] Thatthere were the that these options were here and that you know that it wasn't something that we were going to have to, to fight to get to the Finish Line you know and and I've been through uh Acquisitions before and and you felt labored, at the end that you were just you know like it was it was going to be a continually larger and larger backpack that you were having to carry to the end of the process and, and so there was always that trepidation as we were going through the process and it and it seemed to really kind of get lighter towards the end and and so um, you know knowing that going in it would have been a little easier to uh to really fully commit at the front end I think uh we were still kind of.

[6:31] Standoffish uh I think entering into the process but but having a better understanding of hey as it goes along it's going to get easier I think um that would have been it would have been nice to be able to understand that at the beginning. Would have known it existed you know then in and around business my whole life um and you hear about mergers Acquisitions private Equity third-party sales you know we're in the commercial roofing industry there's been some consolidation over the years uh but you know esops just I think I had heard the word but, it's just not as common um so you know I wish I'd known what they were before. We started with sort of day 1 researching but on the other hand that that made it interesting because there was a steep learning curve.

[7:22] All right so we've got a couple common themes from our first couple questions um confusion but excitement about the idea of esops and also just kind of, wishing they, this was even an option um I think that's that's key here and that's also 1 of our our goals on our podcast here is to just make sure that people are aware that this is even an option for them and to educate on the options they have.

[7:49] Our next question is was there a turning point in the journey where things clicked for youwhat moment made it real for you when you knew employee ownership was the right path.

[7:59] We had a moment in our journey where everything came together and the obvious choice was an ESOP and that happened at an owner's Retreat there was 3 owners that had owned the company um myself and my 2 partners and we had got together annually to talk about our futures and how the company was doing and uh various issues that we needed to take care of and so a couple of years ago 1 of my partners expressed an interest in in retiring within 2 to 3 years and so uh that kind of started a process where we looked at strategic buyout and management buyout or owner buyout of the other partner and um and also ESOP and we looked at those options all of them and we hadn't made a decision and we knew that last trip we knew we were going to have to do that during that weekend and it was a Wednesday Thursday Friday Saturday Sunday event and by Thursday morning, uh mid morning we all looked at each other and said we know we need to do this uh we know we need to make it an ESOP and 1 partner I know was definitely the founder wanted it to be uh employee-owned.

[9:20] I was certainly Pro employee own but 1 of my partners was kind of not sure about that as the best option and he came along with us after we made the decision Doug and I that was our choice and um the 3 of us agreed unanimously that let's do the ESOP and 6 months later we were 100% employee-owned we have uh 1 Partners semi-retired now and uh ready to move on and uh we're in great shape and looking forward to what an esops going to do to take the company to the next level. Me and my brother are in lock step with everything so and if I ever say me your eye I mean we. And once we realized that it was a alignment of incentive.

[10:06] That was consistent with our valuesas people and professionalsthat was sort of, when it made the most that's when it clicked um because from that point forward it it's not for everybody but if it's for you it's really for you um at least that's the way we looked at it, and then you know this you see the compounding advantages of uh the long-term opportunity for for our people, uh for ourselves uh and that that that's exciting and especially I'm 39 my brother's 46, um we we looked at other options. The overwhelming consensus we got from other professionals is is you guys are too youngwe we don't agree you know we we.

[10:51] We observed transition ownership transitions that did not go welland um. What they all seem to have in common is it's like a 10 year deal you know maybe you get it done to 5 maybe 15 but. We came to the conclusion that if you're ten years early you're on time. So when we realized that and then thought about what what do you really want.

[11:16] When you really think about how does it end there's only so many ways you know andyou can based on what you want in life and what your values are. You can pretty quickly either green light or red light certain. Possible ownership transition outcomesum for example dying without a plan, we thought that's a bad idea I know it sounds silly but we observed that and our family and it's bad for everybody bad for the owners bad for the employees bad for your customers everything um. So you know it was sort of just a matter of looking at that long-term and whatmade the most sense and and going back to the original, answer here when we saw the alignment of incentive for what we wanted both from a business side and personally and and from our values and our employees it's like then it was kind of a no-brainer.

[12:10] Wellevery great idea of mine started with the great spreadsheet and uh once I got our spreadsheet from Berman Hopkins on the company valuation, cash flow financing all the things that go into the NissanI was able to really dig my teeth into it, really start to understand it look at all the different variations I get to do all my different iterations with itself to a place where I was like yeah, we have to do this it makes so much sense.

[12:43] And that's a that's a wonderful feeling when you know that what the right decision is uh with something this big.

[12:50] Looking Back Now what has been the biggest impact of becoming an ESOP company for you personally your people or your business. Early uh today it's October 8th 2025 we closed in at the end of June of 2025 uh though that's the close date I'd say the real date was more like January 1st 25 we started having, um meaningful discussion with our key people.

[13:15] Probably a year before we closed um so by the time we got to closing it was a it was a familiar concept um. But you know so so far we don't have a ton of data but but the initial response, is it it appears to be positive for our our people interpretation which is great uh it it seems like it has created a little bit of an X Factor of energy. Uh which is great you know that's a direct result we think of the alignment of incentive and opportunity it creates for everybodyand I I think.

[13:48] It has Al created what I like to call positive pressure. Um we're in constructionpressure comes with it there's a lot of unforeseen umyou know it's not a fair weather game. So we're kind of used to that but this is a little different in a good way because you just have another layer of desire to be successful because it. Spills over to everybody and it it benefits you as a shareholder of the seller wherever you are on that side. And then it benefits your employees so you just have a little bit more meaning a little bit more urgency, and I think that helps you bring your your A game every day uh even more so so um those are the responses we've seen so far but you know. We'll see over time. Well we just rolled this out so I think uh the best is definitely still to come but so far I think it's the Assurance to where our employees and our clients that we're here to stay we're not changing, um you know what you liked about revamp is going to be here for a long time and I think I think that's huge in our line of business um I also think, I think the employees really appreciated the the free swag that we gave thembut really I think the I think the Major Impact is uh still to come, car me personally it uh it has enabled me toum.

[15:17] Truly feel likeuh other people are participating and thatI'm.

[15:26] No I'm not that I'm not as important with the process but um that. I don't have to worry about it for it to get done and and you know that's. Uh I think that probably a lot of entrepreneurs feel that way you feel very um engaged 24 hours a day and you're thinking about the business 24 hours a day and, and and you wish somebody else was thinking about the business in that way not necessarily that you know that everybody thinks about it 24 hours a day but that you know that everybody cares about it as much as you do. And uh you know I know that Brian and I both uh and Mark 2 you know that was. That was always our concern was how do you get people's Buy in uh on that level and and you know now that. I you can actually see that you see people asking the right questions um about day-to-day operations and and long-term. Uh you know survivability and success of the business and and they ask those questions that they weren't asking before so um, you know that that in is itself kind of it's good good for the business and it's good for us as owners you know.

[16:43] What encouragement would you share with another owner just beginning the process umstart ittalk to an expert um talk about it until you understand it enough before you dismiss it um at least get through the feasibility study would be my recommendation because that gets down to the brass tacks pretty quick it is complicated but so worth it if employee ownership is how you'd like to transition the ownership of your company. Perhaps 1 of the best thingsabout considering and becoming an ESOP would in fact be the ESOP Community itself, very consistent with the cultural intent and values and Legacy. Desires of our company because you're certainly not in it by yourself it's almost.

[17:36] Unbelievable the degree to which you received uh friendship partnership encouragementum, there's many things you have to sort through and there's many people who are willing, to do nothing uh better than to be a part of your success so um, not being in it by yourself is a very um and very comforting thing and something that you can look forward to if you decide to go down this path. What you really want number 1 sounds simple not so hard in practice um presumably your owner of a business so you got to think about like the last day. What what do you want it to look like is it like. Happy Gilmore check Signing Day With Private Equity is it you know your employees taking over your company is it your kids transitioning in you know I don't know everybody's different, um but I think it's important to sort of take the time to go into the future and think like what do you want it to look like, and then you know we we looked at a lot of options we didn't just stumble on esoft and say hey this sounds great we did feel like it sounded great. Uh we talked to people who had gone private Equity we talked to people who had sold to third parties we talked to people who have done nothing um and then we gathered information and. Listen to people's stories and I think that's about as close tolike.

[19:05] Proceeding in a crystal ball as you can and when you match up that with your own sort of values and desire. Maybe a clear path shaped itself and then from there since we're interested in esops. You know we started devoured information uh journey to an ESOP podcast that you guys do is great um another advertisement for your firm but it's true before I ever talked to anyone from your firm I probably consumed. 10 hours at least of information uhI wish there were more books on the topic but did find some you know ordered them read them, uh talk to our CPA firm asked them if they had anyone who went ESOP they connected me with you know 5 companies I talked to them some owners some CFOs you know different positionsand just gathered information you know so by the time. We felt like it was the right decision. It was pretty clear so umto the extent I feel comfortable making any recommendations those those would be the ones.

[20:06] And our last question looking ahead what excites you the most about the future of your ESOP company. The employees get to share in our success that they literally have ownership and what they do. I think they were already proud of the projects they work on and proud of the work that they dobut I look forward to to that turning into Financial reward, where are all the hard work that they do as well um it's such an incredible group of people and I hope that this is very meaningful for them.

[20:37] Our ESOP instantiation began at 30%. And there's room left in our mind for it to grow umto something less than 50% candidly it is our intent to always. Retain a majority ownership stakeholder ship in the company in the handsof a small single digit number of stakeholders as it was for the founders. We believe that's the way to solidify our Legacy, now in the futuresome future CEO will have to struggle with the consideration of really where to go but it is our intent to provide a roadmap and a demonstrated success path, for how to not only start an ESOP company but not only how to uh transition stakeholders to new Executives but also show how in the decades to come they too. Could choose to do that very same thing.

[21:41] That people will continue to buy in continue to be more and more comfortable uh about the ESOP I think as they see the their value grow um. It's an innate thing that's going to happen I think that people will will say hey, this is really working hey this is really going to affect my uh retirement this is going to affect my family's future and um this is the vehicle, to do that and soum I think as as people see that actually, you know they get the they get their valuation statements at the end of the year they see an increase year-over-year they understand that the work they're putting in into it um is is working and the company's growing um.

[22:30] You know I'm excited that there'll be more people come in to the team and that that it'll be more impactful for those people um. You know I don't think that people like to move around as much as they've been moving around you know people. Tend to job hop a little bit in at least in our business you see thatand I I don't don't think they want to do that but they're trying to find you know a way to sometimes catch up but but at least at the very least prepare to uh have savings have a retirement and and and have benefit for their families and so if they can see that they can get that, where they are and that they can affect that uh without having to take the risk of job hopping um I think it'll benefit them and I think it'll benefit the company so that's that that part of it to me is exciting.

[23:23] And that concludes all of our questions for our owners thank you so much for those who participated and for those listening hopefully some of these responses um. Have resonated with you and kind of maybe give you a new perspective on the idea of esops and, uh maybe intimidation of learning or exploring the idea of esops and hearing from those who have gone through it already um. And as you've heard there's common themes around you know confusion the complexities involved however also the umkind of. Revelations that are made throughout the process and in the learning and that um you're able to gather by leaning on those within the community and your your providers um and then also hearing kind of the, the benefits even even from the beginning of the transition as as you've heard today um.

[24:24] So again thank you so much for listening we encourage you to. Stay tuned for part 3 of our 4-part series for employee ownership month which will be on a view from the inside of an ESOP company. Um what happens once the transitions place takes place what that looks like the leadership team and um the employees, so stay tuned and join us then.