EP30 - ESOPs as a Growth Strategy- Interview with Chris Fredericks

For the final episode of the Employee Ownership Month series, Jason interviews with Chris Fredericks, President and CEO of Empowered Ventures. Jason and Chris both discuss the power of employee ownership and how it can help expand a business, attract talent, and build more resilient companies. Their conversation highlights company growth, finding competitive advantage through a company's culture, and why employee ownership continues to matter in an AI world. This episode is the last part of the podcast's four-part series recognizing the importance of employee ownership.

Transcript

[0:13] Thank you and welcome back to the final part of our 4-part series on what is employee ownership. In the last 3 weeks we've explored what employee ownership is we've heard directly from owners that have gone through the process of an employee ownership transition and made that leap and we've talked to leaders on the inside of a company uh of after the the employee ownership transition and today for our final part really what we're going to talk about is, employee ownership as a growth strategy as a growth engine. And we're looking at uh not just the secession Tool uh as we commonly think about it for yourselves but to set up the future of the company.

[1:05] Uh and not just your culture but your vision and with me uh Jason Miller your host of the. Journey to an ESOP and Beyond podcast and ESOP advisor. I have Chris Fredericks the president and CEO of empowered Ventures Chris welcome to the podcast todayhi Jason thanks for having me on. So let's start with a big idea what happens when employee ownership becomes an engine for growth and where I'd like to start again we've covered. Maintaining culture and maintaining an individual or family's Legacy with transitioning ownership to employees and we like to think about that as preservation.

[1:49] Of that Legacy and of that culture and and protective.

[1:53] Uh but 1 of the key elements of being a great leader is vision and instead of kind of Looking Backward at what was and how we got here. Uh I'd I'd really like to uh hear from you. This is the beginning of a next phase and what kind of leader sees employee ownership as a growth vehicle not just for the company but for their vision.

[2:16] Yeah that resonates a lot for me um what comes to mind initially is just that uh a business owner um part of that that Legacy minded approach and having a vision for the future is to have an even more ambitious for what's possible than what has been achieved so far even once they're gone and that you know that kind of thinking uh is really powerful for a company and um fits extremely well with this concept of employee ownership and um yeah it's just to me it's a really powerful way to think about what can be done with uh during a transition process for a company.

[2:55] Well I I hear a story in there so I'm going to ask you to share yours so tell us the the story of empowered Ventures how did it begin uh what convinced you that employee ownership could be more than a 1 company solution. Yeah um yeah thank you so uh I was the CFO of a small textile Distribution Company uh way back in 2010 um and it's a business that I had joined you know just um from another job I I didn't have family relation in the company um but it seemed like a good business and I uh it was just kind of a straightforward career move.

[3:33] Um but the owner at the time his name was Dick Hansel um he founded the company in the 70s with his partner and they built it from scratch it was the classic. You know build the company out of your garage literally you know story um. And from the 70s on they built this textile distributor to a really great you know leading business in its industry um. And by 2010 it had grown to you know be something around like 5560 employees and. Um Dick had bought his partner out about a decade before um but dick was getting up in age and started having some health issues uh and he was really needing to figure out his personal succession plan um and so at that point uh he had also tapped me on the shoulder and said uh told me that he saw me as someone potentially a future leader you know for the business um so you know he he asked me to help him figure out the succession process um so I ended up finding you know learning about esops as part I didn't I wasn't aware of esops before um what really got me.

[4:45] That a lot of what I'm sure you've all you already have covered in the podcasts you know makes sense made sense for dick like the the straightforward reasons ESOP made sense um but this concept of it being a a company building tool is what got me so excited about it um and it also resonated with dick um dick even though it was a textile business he had started he had viewed it as a vehicle for uh like more Visionary growth like even a holding company strategy he had added on to other businesses um to the to his Core Business over the years as well and then we exited those but he he did have this like holding company vision for himself well before we came up with it for empowered Ventures and tvf um but and then for me the idea that ESOP could really get the people excited about something more than just what the business does um and and that ended up taking root and then and 10 years later we found it uh you know empowered Ventures to continue to grow through acquisition and and really take uh this employee ownership culture to another level and really help the give everyone a vehicle to feel like they're part of something bigger I guess that that is 1 way I would put it is um business owners and workers all you know crave.

[6:12] Uh purpose from work and you know that purpose can come in just doing phenomenal work and the the specific business that you're focused on in our case textiles um. But it can also grow well beyond that and I think employee ownership is just a really powerful way to find your path into like a bigger purpose for. You know a companythat's a really important statement in talking about purpose and work and we're going to unpack that uh in more detail a little bit later there's something I want to ask you about um and and thank you for sharing that that story and when you were tapped on the shoulder to be a leader. You went to look for an employee ownership not not specifically until you found out about it uh about the ESOP how how did you feel um. Personally on well great I I can be the leader. Um but you you did end up going in in ESOP route and I I don't want to I don't want to say that that's entirely selfless uh but ambition um for for many that were in your shoes as it's kind of a protegge or next step uh to talk to us a little bit about your feelings in that not being the founder but being the next in line and then choosing ownership for the secession.

[7:30] That's a yeah so it in full disclosure we actually talked about whether I could buy the company at that time before I was even aware that employee ownership was an option um and it just. Didn't make sense for a number of reasons and I feel super lucky that it didn't honestly um because. As once I learned about employee ownership and ESOP that you're the ambition you're referring to which I definitely feel like I had at the time and and still have um you know it it wasn't just to own something it was to do something meaningful that was really my personal ambition um and.

[8:11] It unlocked for me personally the employee ownership but ESOP unlocked uh the potential to uh do something per meaningful that um isn't just charitable like before earlier in my career I actually thought about going into the nonprofit world I thought you know that's the way to like have an impact um and so super exciting for me to. To be be able to stay in the for-profit world which I think has some significant Pros in terms of the ability to make an impact. Um and combine it with something a vehicle that also creates that opportunity um. To just feel like you're making a difference hopefully in people's livesso.

[8:57] It your goal is not growth for growth's sake.

[9:02] Uh so it is more is it more to grow more employee owners um or is it an idea that you think just spreads naturally once people experience it talk a little bit about the the inside culture of balancing Mission with uh motivation uh and and results. Yeah we've defined our purpose for empowered Ventures as creating life-changing personal and financial uh well-being outcomes for our employee owners um. So I don't necessarily think that translates directly to saying we want to create more employee owners I do feel like growth through acquisition has been a awesome vehicle for us to uh you know used to kind of fulfill this purpose but it's definitely not we're not just measure measuring success on how many employee owners we have or create um it's it's really about creating uh an in maybe an institution or a you know a a vehicle that's going to last for the long term that will um.

[10:11] You know sustainably create workplaces and workplace experiences for our people um. That you know is truly life-changing on some level and I I feel almost sheepish saying that because it's kind of it is so ambitious to say life-changing but uh I also believe employee ownership when it's just done well it doesn't have to be done even like at the highest possible level it is so life-changing you know the numbers show it the cultures tend to show it you know that that in terms of the businesses in terms of sustainability how long they last it shows that so you know just doing that just doing employee ownership by itself I think is. Good enough to create life-changing outcomes but then I as with all of their ambitious leaders I'm sure you've you see it also it itit almost like lights, you know the match to kind of want to do more too like well how far can we take this and for us that means like personal well-being what is how do we think about the impact. Uh work can have on folks personal well-being Health Care being a topic for example lately that's on our minds a lot. Um but you know career pathing how can we help people.

[11:25] Have the the best career that for them that they can have so it just for me it just is a is a very symbiotic kind of. You know relationship between being employee owned and like all the potential for you know impacting these employee owners it's there's it's a it's less of. Um you know and when a company's owned by an individual it's. It really really depends on that individual's personal values which is how it should be and a lot of business owners have awesome personal values that translates into creating amazing cultures and play ownership is like creating almost like a permanent version of that for the company that no matter who's going to you know lead in the future there's this core set of core approaches and thoughts that's good just sets the business up to um maybe sustainably be a life-changing workplace. You mentioned really uh key pieces of what it brings to the employee owners and to the company itself from the perspective of of of it being owned under this this structure. Retention uh resilience uh for and then kind of long-term value creation and what that means to them uh tell me from the business perspective how ESOP owned companies can compete in ways that others can't and what you think the magic is there. Yeah um I think it's.

[12:53] 2 2 main ways 1 is you know in the in the competition for people it's just such a game changer when when it's utilized well um and the hiring process and the as you say the retention we've seen incredible retention of folks you know once they once they kind of get it and they they they um you know uh just the click it clicks in it's like they almost never leave um and that's it's it's awesome retention policy and that's our approach in that sense um but then in terms of like the energy the competitive energy it can bring towards the markets the customers you know just that approachit's really it can Infuse an entrepreneurial Spirit into. Folks throughout the business that can unlock growth and uh and also be a an uplift. To uh change management so in terms of a company's ability to as you mentioned be more resilient when things do need to change there's kind of a different message that can be utilized that. You know it's it needs to change not because this 1 person said so but because we all understand what we're trying to accomplish together for all of our benefit, um that can be a a an enormous supportive uh you know uh. Feeling in the business when change needs to happen that's not always easy to make.

[14:20] So despite the the sometimes difficult circumstances that you find yourself in just as as part of being in business exactly it's it's not uh additionally cumbersome to be able to make the right choice almost the the right best or optimal if you want to look at it that way is somewhat embedded in the fact that everyone's working together is that is that something you would agree with I do I think obviously a lot of work has to go into making them put in a ship feel real that they really believe. They have that voice and that their voice matters but I do think most employees own companies do a good job of doing that and reinforcing that and once that's in place. Once they feel like their voice matters and that they have this sense of of true ownership. Um yeah they they're more vested in outcomes of the for the whole business not just, focused on you know my my job or my world they can broad it can broaden their perspective um in a really powerful way.

[15:20] So let's step back a minute and imagine where all this is heading so the future of work and what employee ownership could mean for it so some of the broader forces at work like we're hearing a lot about engagement and retention and purpose you mentioned purpose earlier. And that's defining the next era of of work it's not just monetary it's not just providing. Um from your Vantage Point why do these matter so much uh and and how does employee ownership answer them.

[15:50] Yeah I I think assuming out to that highest level um casts even more like light on the benefits of employee ownership in this way I think even we could say issues we're seeing in society like you know people are there's everyone everything has been democratized information you know just there's so much out there so folks in general I I feel like have a craving um to have a voice in their world and and not feel like they're just kind of um. You know under the stuck under some sort of you know system that they have no impact on and so there's this craving for that and you know the workplace is such a great uh place to actually um almost like work out the challenges of having democratized.

[16:45] Kind of culture you know like everyone having a voice it actually it's powerful but it's not easy and so. You know really it's it's fun and almost like a neat way to try to work on, issues that society as a whole has a hard time dealing with but like when you boil it down to 1 company. Um and everyone has kind of shared outcomes in mind. It it I think it's we're actually working on like a social experiment generally with employee ownership that's going to pay dividends for all of society in the future.

[17:20] Diverse companies going back to empowered Ventures uh and uh talk to us a little bit about how you've been successful in integrating uh integration is all always the the key marker for acquisition like how well can can you integrate um yeah talk to us about the benefit of culture and your your goal to to make that cohesive across these diverse parts of your business.

[17:46] So our approach is to have a word Diversified hold code so uh companies we've acquired have been in Desperate Industries uh intentionally um so we have 5 companies now different locations different Industries and our approach is to um create and Foster. Uh a general unified uh appreciation for this employee ownership opportunity everyone has um and a and kind of an understanding of the vision and a belief in the vision but then each company um.

[18:18] Is charged and we support them to build their own version of of employee ownership culture for them we're we're not taking a 1 sized fits-all approach um because of all the you know like you said differences there's different in a different location different state different industry um each company is bringing some sort of Special Sauce, already that we want to make sure we're not you know losing um by trying to create some sort of you know. Program everyone has to enact um so that's kind of part of that experiment I almost referred to earlier is like how do we create a. A cohesive um belief and like connection connectivity for everyone to feel like they're empowered Ventures owners. But also maintain their pride in the company that they they work for and maintain a unique. And and awesome culture there that that kind of Fosters its own version of it put ownership as well and I think it's actually kind of neat to try to think of it this way rather than saying there's just like 1 simple program because it really honors the unique personalities of the of the companies and the founders that created them and the people that work there.

[19:33] This uh to me it sounds a lot like ownership gives meaning to work in a way that traditional incentives just don't. And that change is possible inside a company and not change to go from State a to State b um but from uh Theirs to oursum and people begin to see their work as an investment rather than just employment is that something you would agree with.

[20:02] Yeah I love that going from Theirs to hours um yeah and as once that clicks in um and you you feel that that change in the business um everyone's voice starts to rise and um. Yeah theythat that sense of this is mine um.

[20:21] It's almost it's a little scary honestly for leaders sometimes it's like well all these folks they think this is theirs because it is and so it really does elevate I guess it elevates the. The pressure almost or the the requirement for leaders to honor that that voice but it also on the flip side. Is a really powerful thing for leaders because of the Tailwind it creates I feel like, and traditional companies if if they feel if everyone's feeling like well this is theirs not mine that's a headwind that you're you're facing as a leader that you have to overcome to make progress once it flips to like well this is mine not not theirs. Now it's a tailwind and that's actually a really powerful thing to have at your back as a leaderno absolutely, so Chris let's have a little bit of fun with a big picture question um we're at the uh kind of at Advent of the the AI era um and I yet a Google cover not alert but like in in the recommended articles something every other day about the impending AI Singularity when we've got general intelligence and in the whole world's going to change and the AI apocalypse um with the ability for AI to reshape Industries what happens to the idea of ownership and meaning does Legacy or shared purpose survive when income may not.

[21:49] I think it's a great question I mean it definitely will depend a lot on how it truly plays out I I I personally think there are the 2 paths where 1 there's a lot fewer workers that need to do work uh I do think there's the alternative path which we've seen in all other previous kind of major you know technology you know Crossroads and mo moments where it just creates a lot of new and different jobs that people end up wanting to do um, person I probably lean a little more towards that path versus like the their No 1 ever has to do work again kind of path I just I have a hard time imagining that either way though I do think employee ownership it kind of, is a at a minimum a very inspirational kind of an influential thing that could help either path. Um I mean the oil dividends in Alaska for Alaska the the way you know some countries kind of go down a universal basic income is kind of a version of employee ownership if you think about it.

[22:52] Um or you know in the path of its going to have create a lot of disruption in companies but people are still going to have jobs. I think it's really powerful you know being even in in just current opportunities for automation or you know things that just could theoretically displace a job um we found it to be really powerful to say you know we're going to implement automation but we're not going to cut anybody it's just going to make your job a lot more, you know better in many ways you're going to get to do more interesting work you're going to have more productivity but it's kind of a promise to not cut but but to if we're all going to embrace you know what's coming also.

[23:33] Some listeners might think about this in in that optimistic view of the world is going to be changing um and with with the that change uh if it just brings new responsibilities or more automation or an easier better way of performing a similar or same function. It's less about making workers obsolete but they may have the view of oh well. Um we're we're going to have to just stick to the old ways in order to preserve our people because employee ownership is is more important to us than evolving.

[24:06] I think that you would probably have a different stake on that but share uh you know that your experience um as as a leader and thinking about that for the future of of your different companies. Yeah I think that's a really great Point Jason I empathize with that way of thinking you know it's there's a lot of uh great. Companies that do amazing things and they don't want to lose that you know that like we the Special Sauce that you know and the idea of putting it at risk to embrace significant change is definitely scary even you know for leaders and and employees alike um. I think the hard truth is we compete in a global Marketplace and. You have to stay competitive if the business gets competed out of existence it's not going to have a positive impact. So I think that's the thing people need to leaders especially need to keep in mind when it becomes a question of kind of we're going to stick to the old ways versus you know embracing.

[25:08] Progress change however you want to put it um. Obviously not all progress has to be the right progress like it can be tailored to each company and and things like that but um I would just I would be cautious and wary about um. Being competed against by companies big companies with a lot of capital that are embracing you know Innovation and um.

[25:34] Yeah I I think it's important for all of us as Leaders to lead the way in the employee ownership space to to make sure the impact we're already creating like continues long into the future.

[25:46] I want to highlight something that you had said earlier at this juncture because of that that answer and that was so something along the lines that employee ownership. Doesn't have to be done optimally. Doing it at all is is an advantage in and of itself because you're the momentum that you as a team are kind of building toward anything that could be coming in the future. Yeahso for owners who are still uh kind of early in their Journey let let's bring it back to today to kind of strategy in action. I think a lot of owners think of esops as a retirement strategy both for themselves and then knowing that it it's a retirement plan for their people what would you say to those who don't yet see it as a potential growth strategy. Mhm yeah um I think that that could be uh an exciting thing for them to think about and and like uh explore with with for their company um it's a phenomenal as you say you know solution to succession planning um and and creating retirement potential for everybody um. It's it quickly and I we have found and I'm sure I think most of the employee owned companies find that as soon as.

[27:00] The it clicks in that the impact that it's having. Um it's it quickly help becomes a shift towards well how can we take this further so if if if an owner who's thinking about ESOP. Can kind of start from the beginning with that in mind it could probably it just speeds up the process versus it being like a few years down the road when employee owners see their ESOP accounts growing and they're like okay well let's start talking about growth.

[27:26] Um that could kind of you could kind of start earlier in the process to to ensure that you know this kind of growth mindset and the potential that an ESOP has to put hot sauce on the companies kind of growth potential. Um I'd say it's very possible to bring that in right with the be at like as part of the the very initial formation and kind of communication approach with the ESOP um so I would just encourage owners to not miss that opportunity to kind of bring it in right at the beginning as part of as part of the plan, you've shared your your journey as career move to leadership to uh next in line and then you you've talked about your your journey um to an employee owned company uh and this this idea of just general secession um what, what role does vision play in making that possible for others and the the leadership aspect the secession the per personal secession aspect unless the the stock sale or company transition.

[28:35] Yeah I mean I think vision for the company is the leader's number 1 you know job. Um Vision encompasses everything and encompasses succession it encompasses you know what what um how the company's going to compete in the future long into the future um so yeah having that that sense of a vision doesn't have to be just 1 person's Vision but it it needs to be 1 person who who uh the leader who like views it as. So important and essential to have that Vision um I definitely think that's like absolute requirement for an ESOP company or any company you know to. To be effective and. Um make sure you're headed in the right direction ultimately um a lot of work is being done day to day everyone's making progress happen but is it is it progress that's. Collectively moving in the long-term right direction you know I think is is is a Leader's number 1 you know jobs so I would encourage all leaders to embrace that.

[29:43] And just for clarity that vision of the founders or the current owners isn't getting shelved as a legacy in the transaction and it doesn't die when their their day job if you want to say you know transitions to another person is that am I hearing that correctly from you that not only can I but it can Thrive and continue to influence afterwards.

[30:05] Oh yeah I think that's well put um I think especially a Founder seller who who's going to sell to an ESOP and eventually maybe transition out um that is the moment that they can kind of Infuse their vision and into the business and. Long Live into the future um of course as. New leaders kind of come in and um take o take over leadership of a company they're going to also influence that vision and it and it could shift over time but um some form of like a a core founding you know Vision at the moment of an ESOP being formed I think can have multiple Decades of Runway you know in terms of creating an impact for example you know an owner who wants to ensure that like an impact on the local community is like infused into the business for forever it can it can be done by kind of being really clear about all the other reasons you're all the other outcomes, the founders hoping for or the seller's hoping for to come out of this employee ownership model other than just you know some Financial great financial outcomes for employees over time.

[31:18] It appears to me um as though you know certain qualities in the next generation of leadership within the company would be more important uh then then others and you haven't lived that Journey many of our listeners are thinking about that like what what should I be looking for and who's who's next. 13 this Vision on to the next part what what qualities would you say are essential uh for for thatyeah um.

[31:51] Some things come to mind in the the belief in people like that that it's not on not me it's we that like a true deep belief in that is just to me absolutely Central for an ESOP company um as leaders. Ambitious leaders, it's easy to default to like it's all on my shoulders and take that on almost that burden on um it's very tempting um.

[32:18] But having that kind of deep belief that that's actually not the best path for the company success it's actually better if it's a wi approach. Um and leaning into that ambitiously not not just like passively but ambitiously I think is an essential quality of like an employee-owned company leader. Um and I would say this Visionary kind of thought process you know being being someone who um.

[32:46] You know in the EO I'm not we're not an EOS company but if anyone's familiar with the OS they have this Visionary integrator kind of concept. Visionary leaders are the ones thinking longer kind of more more about potential what's possible for the company and integrators are more like operators and great day-to-day leaders and you know in the Eos world having both of those folks um is a great partnership approach to Leading a company um I think for the leader at an employee owned company there needs to be some of those visionary kind of strengths um combined with this we approach but then you know. I don't think it requires like on the flip side I don't think it requires per a perfect leader like there are no perfect leaders um just people that are passionate about the vision and executing the vision and passionate about employee ownership um I would I I would encourage. Business owners to make sure they've they look inside their company to they are great people in their company that have qualities that they can invest in and build up um it doesn't always have to be someone brought in from the outside.

[34:01] A little bit of an aside but kind of thinking beyond the board and I I say that purposefully because I had a friend of mine about a year or so ago send me a link to 5D chess I'm like what is 5D chess and you have your your normal kind of 3 dimensions and and really it's XY axis and and whatever else but the other is timeline so it's left and right and then multiversal up Up and Down. Um and I my other favorite analogy for most ESOP companies is the spinning plates from Cat in the Hat but for you specifically uh with all of your diverse companies underneath of your hold Co structure uh how how do you think about the long game and balance Mission and growth and responsibility how how do you think several moves ahead and what kind of Frameworks guide your decisions.

[34:54] That's a great question Jason I may not have I may I may need to uh challenge myself to really think more about that 1 um. I'll take a quick stab at it but um you know forgive me if this isn't a a great answer um.

[35:10] I think we we we do have well when we founded Empire Adventures umin 20120. I worked with a local marketing agency and to help figure out the brand and the everything all that all that stuff the colors and the the the name and the logo and and they did a great job of um.

[35:34] I I had put a lot of thought into what why why am I wanting why are we wanting to do this and but they challenged me to.

[35:41] With a particular exercise that turned out to be really powerful they they. Asked me to do write a a an obituary in the future. When empowered Ventures goes away however long I want to say and so I chose 200 years um like what's right the obituary. And writing that out that that 1 page orbituary which is just insanely like 200 years the impact that's theoretically possible so it's you know a silly thing in a way to read but it really does reflect like my greatest ambition you know for what we we could achieve over 200 years um doing that exercise taught meto really truly think with the end in mind. Andbring back and then try to bring that all the way back to now and I do. We do think about that when we make decisions now I think that's in a sense getting to your to what your question that.

[36:49] When you're making small deck decisions that feel small or reactive to what you're facing right now.

[36:57] Is that truly consistent with what you want the foundation you want to build especially for an employee owned company. The foundation we're building in our day-to-day work today really could have impact for many many decades if not centuries. And so just having that truly long-term crazy long-term mindset I actually think is pretty powerful a way to try to accomplish what you're what you're referring to there. That was the word that came to mind as you were talking is that that's that's a very powerful framework uh and perspective umChris my my last question for you today is what. Key piece of advice or wisdom would you give to the audience listening that is considering employee ownership as part of their next chapter. Definitely an ESOP transaction isn't always the right answer for every company but I do think it's the right answer for a lot of companies that don't end up going ESOP so um if anybody.

[38:09] Feels a pull in this direction I would say just don't give up on it too soon like really really flesh it out and give yourself every opportunity to find if this could be the path for you uh I think a lot of business owners. To no fault of them their own but they they don't they give up a little too early because other advisors aren't always supportive of esops kind of outside of the ESOP space um and they can be quite persuasive. Um and I understand that they're looking out for an owner's best interest umbut I just I think if they feel that pull like pay attention to that because that there's something their their their legacy their they have a vision for what they want to accomplish and if they're feeling any pull at all towards employee ownership I think honoring that is what I would advise for sure.

[39:03] Very well said Chris and thank youuh listeners to today we heard that growth and employee ownership are not mutually exclusive but they reinforce each other and employee ownership can be fuel for expansion Innovation and not just a legacy but the preservation of a vision for the future.

[39:22] This conversation wraps up our 4-part series on what employee ownership is. We started with fundamentals we listened to owner's voices in their own words and then that inside view of the company and then now we've ended this by imagining the future.

[39:37] My Hope Is that this series serves the lasting resource for anyone exploring what employee ownership can mean. For their business for their people for their legacy and for their vision.

[39:49] To Corey Kimberly are participating owners and Chris for you today thank you for sharing your time and your wisdom and to our listeners if you've found these conversations valuable please uh like. Share with a friend with another business owner with a trusted advisor the more that we spread understanding the stronger this movement becomes again I'm Jason Miller thank you for joining us on our journey to an ESOP and Beyond until next time.