EP18 - Foundations of Transition: Strategy into Execution

In this Journey to an ESOP podcast episode, Jason and Makenzie continue the Foundations of Transition series, focusing on the theme of turning strategy into execution, exploring how these elements play a critical role in preparing for a successful ESOP transaction. Each workshop-style conversation in this series is designed to help business owners think more intentionally about the future of their company and the role they play in shaping it.

This episode encourages owners to look beyond strategy alone and consider how effectively their plans are being carried out. Jason and Makenzie introduce the concept of “mini” strategic planning: breaking down not just what needs to be done, but how to implement it and how often to revisit progress. Through practical insights, they highlight why building strong accountability and execution habits early can reduce friction during a transaction and better equip your team for the work ahead.

Transcript

[0:12] Welcome back, everyone, to the Journey to an Aesop and Beyond podcast, where we seek to make all things related to employee stock ownership plans, both accessible and understandable. I'm your co-host today, Jason Miller. And I'm Mackenzie Worth. And we're returning to our Foundations of Transition in our fifth installment, now that we are in the month of May. And today, we're covering what we're going to call accountability and execution discipline. You're like, Jason, where did you come up with that title? Because that's what Mackenzie asked.

[0:57] So in the first four installments, we've talked about what it takes for you as founders, as owners to think through what you want to accomplish in a transition from your ownership to someone else, the courage that it takes to do that, the strategy and vision behind it. And last month, we talked about how your company's culture communicates back to you what's there to work with. And so now that you have that base, what we're going to build on today is how do you turn that into action? And what should that look like with all the constraints related to a potential exit from your business, transition of your ownership, however we'd like to say it. Sound like fun, Mackenzie? Sounds great. Um, I often tell my children when they are encountering a problem or an issue and something seems insurmountable, um, my, my, my response in a loving way is I understand that this is hard, but we're a family that does hard things.

[2:21] And just because we're experiencing something for the first time um it is scary it is frightening it can seem monumental and in some cases it is monumental uh and without diminishing the magnitude of how it feels to my kids uh my very stoic encouragement is that this is going to be hard, but we do hard things. And that's what we're going to talk about a little bit is that mindset of how in the world do you move from being an owner and a founder of the company that you're sitting in a hundred hours a week, some weeks with all the people that, that you know, and love that you care for and you're responsible for and start taking action around moving that ownership and responsibility to someone else.

[3:23] Yeah, I think everything we've discussed before is maybe the idea of doing hard things like figuring out how to delegate authority and figuring out how to have a strategy and implement a strategy and communicate that strategy. And today we're really honing in on making that practical and what should be in place to hold you accountable and actually execute everything we've discussed, which is not meant to be easy. But the more you're equipped with the tools to do so, it should be less chaotic. Yeah. Less chaotic. Yes, that's the plan.

[4:17] One of the individuals that we're working with right now is a marathon runner. And I think I've shared before, we had a season of running before in our life. So I understand the training that it takes to be able to complete such a race, and many of you may as well. But if I were to go out today, since I'm many years removed from my season of running and want to run a marathon, Mackenzie, how do you think I would perform? How do you think I would feel when I was done, not necessarily if I was able to finish?

[5:04] Maybe chaotic or defeated or exhausted. And I, I believe that what I'm alluding to in that is, for to, to get across the finish line and founders for you, the finish line is the transfer of ownership and whatever that may be. It is a big event. It all happens on one day, but the race leading up to it and the training leading up to that particular race day is the muscles that we're asking you to develop. And then we're going to give you some pieces for you, some four pillars we'll call them today, for you to take away and think about and how you prepare for an ownership transition instead of a marathon. But by all means, if you're training for a marathon, continue to finish is to win was my motto for so.

[6:09] Of these, Mackenzie, do you want to start with the first of the four pillars? Yeah. So the first of the four is what we're referring to as clarity of ownership. And what we mean by that is not ownership in terms of ownership of the company, but more at a granular level, who owns what in terms of responsibilities.

[6:38] This could be, there may be less clarity when responsibilities are more implied rather than explicitly understood by those in their roles. And when responsibilities are implied then maybe you're sharing responsibilities amongst others without even maybe realizing it or your decisions are not being made at the level that they should be made and maybe they're constantly being pushed up which creates that burden on the owner or that bottleneck and at the end of the day there's no real accountability on one person or it's shared which makes it a little fuzzy and more difficult to stay accountable when everyone's maybe pointing fingers at each other.

[7:40] So who really owns it if more than one person thinks that they own something? Right. No one. No one, right? Or they do the Spider-Man meme, right? Everyone's pointing to everyone else. um and i in in this let me let me go back and reframe a little bit about the muscle that we're asking you to to develop or the training sequence and it's incremental lift for non-core functions of what you're what you're doing day to day because preparing for a transition preparing for an ESOP transaction, preparing for perhaps an acquisition if they're intermittent and not like normal course. These are all things that are above and beyond what's required for you and your company to continue. And it is better for you to prepare that now or to think about how to structure preparing that as you lead up to it. And so your first step is, who do I want to own the responsibility for these tasks for this, in our case, an ESOP transaction? Who do I want on the team internally?

[9:03] And one of the things that I think is key here is not everyone that you can normally rely on to execute well may be in the know as you're contemplating an ESOP transaction or any other type of exit. So it's important to realize how tight your circle needs to be and how delicate the news could be that you're moving in this direction and how you want to expand that over time. What you can do is always position to your trusted people and your leaders and even your managers is this concept of sometimes we have to do things that are incrementally more than our operations, that are non-core functions, that are projects we have to take on, and we want to be ready for those. And this is what's going to help you become ready for those so that the muscle gets developed when you apply it to an ESOP transaction, when you apply it to an acquisition, when you apply it to something else that comes along that's outside of the ordinary. And so this first step that you mentioned, Mackenzie, I think is really important, is a derivative of who's on my core team and then who needs to own what outcomes. Right. It's not just who's going to be in the know of this maybe.

[10:32] It is kind of secretive at first or it's not something you broadly tell everyone so who's not just who's in the know of this maybe foreseeable transaction or the idea of a transaction but what is everyone's specific role that's involved are they for example in an ESOP transaction if that's where what you're considering is their role to focus on the employee aspect of it is their role to focus on the company's financial impact of it, really clarifying not only who you've chosen to be a part of that, but why and what their role is, what their responsibility is.

[11:16] I believe there's a way to make this normal. I don't want to say routine. We're going to talk about routines in a moment. But to make persons that already have responsibility, HR, finance, like you mentioned, not just accountable to the day-to-day, but a framework of it's normal to ask for information that may seem weird to that day-to-day and that we are utilizing that information in order to contemplate bigger projects or the future of the company just in general as a practice rather than an event. Does that make sense? Yeah, I think so. And I think that maybe leads into our next pillar.

[12:08] And that is and that is operating rhythm, so finding a rhythm in routine essentially and what do you think that looks like Jason, yeah.

[12:28] It depends greatly on what you currently have and how you're operating just in general. If it's chaos, as you mentioned earlier, and people just show up and they do a job, but it's not in sync or in rhythm with everyone else that they relate to, it's going to feel like that. It's going to feel chaotic. It's going to feel as though success is accidental rather than purposeful. And this doesn't have to be extravagant. Like everyone's just doing their own thing and then the company happens to be successful because of one very strong personality or one very deep relationship or one very charismatic founder. And all of that energy gets carried forward. and it becomes a sitcom, right? It doesn't have to be that. It's moving from wherever you are today to something more like an ant colony where everyone has their job, everyone has their role, everyone's doing their part, everyone's communicating and then they're moving like many small organisms moving like one large organism for a greater purpose. And that's the spectrum. So sitcom to ant colony, I think is what I'm getting at.

[13:55] And one of the tools that we've seen companies use to be successful in migrating from chaos to ant colony or sitcom to ant colony has been something like EOS and traction. Mm-hmm.

[14:18] And for those that maybe don't know the acronym EOS, can you define that for us? Entrepreneurial Operating System. So now we get back to you. I think I knew that. I hope that that was right. I think that was right. I asked you because I was like 90% sure. Maybe we're in that 10% range. But it's just EOS in my mind. It is a way of implementing accountability and routine and benchmarks and measurable results that are specific to your business in your business to get not just engagement, but again, that responsibility and accountability piece. And when it becomes routine, routine becomes rhythm because you're going to find that in your own company. Mackenzie, what's your experience been with EOS? I think it's much of what you described in terms of having consistent scheduled meetings, leadership meetings, planning, like quarterly planning, or I think maybe every trimester.

[15:40] And within those meetings you're tracking issues you're tracking visions or making sure like everything you're planning is aligned with your vision and then keeping scorecards for whether that's certain KPIs or scorecards that kind of tie back to the issues that you're trying to solve. And it is kind of built to create that accountability by every time you meet, you revisit what you discussed the last time or what issues remain outstanding and where your scorecards are sitting. So it really holds you accountable, whether you like it or not.

[16:28] Few people do, unless everything is going well, but accountability is one of those hard things. Yeah. Again, we as a family do. So we're going to do that everywhere else too. I like this line that came up, that discipline is not intensity. It's consistency over time.

[16:57] And listeners, you're obviously, if you're in a spot where you're considering an exit of successful business, you've been disciplined. You've been consistent. And what we are asking you to do is think about expanding your consistency so that your company and operations and your time and your life don't suffer as you're approaching such a huge event like transitioning the ownership of your company. You'd mentioned scorecards. So if we have scorecards, Mackenzie, then that kind of leads us to who's keeping score and what does that look like? Mm-hmm. So our third uh third pillar is visible scorekeeping, so maybe not just in the beginning of the year you set revenue targets or there's certain kpis that you discuss um it's actually tracking those throughout the year and, and essentially scorekeeping, seeing where you land compared to where you discussed or what ideas you had in the beginning. And maybe that's at multiple levels in the company, maybe that's at your executive leadership level, maybe it gets more granular at the department level.

[18:23] So just having that in place to, again, hold you accountable. What if I said, I feel like we're doing great? That's not good enough, Jason. I need something tangible. So my feelings aren't necessarily facts or facts don't care about your feelings or however that may arrive. So I have a question around this. in contemplating, utilizing this for preparing for an ESOP transaction, what could a scorecard look like for that incremental project? Hmm.

[19:19] I don't know if I'm heading in the direction that you're thinking, but maybe a scorecard would include having the right team players assembled, external team players. If it's more, if you're thinking more internal-based, then, maybe it's are we in a place financially where we've had like a great year this year and last year we've kind of been trending at a great run rate it's not like, four years in a row of bad years we're in like a good spot we have things under control.

[20:09] What do you think? I have no idea where I was going with that. I just decided to put you on the spot and ask. I thought it would be a good conversation for us to have. If I were listening, I would want to know, Jason, you're talking about utilizing this to help us get through and train for the ESOP transaction. So what would a scorecard look like that's not EBITDA for us or profit margin or our shipping times or whatever it is that we do? So I think your answer is we're really good and insightful, right? Where have we been and what do we need to do next? Who do we need to have on the team? And then breaking that down further by, have we reached out to advisors, to our trusted advisors first, as we've advocated on our previous shows, to investigate what an ESOP entails? Do we know what the time lift is going to be? Have we thought about the scope of the project that we are taking on in the beginning? And then when we have that, now we can break it down into further measurable and achievable goalposts along the way. And you can do that, listeners, with an ESOP transaction.

[21:38] And you also get to determine what score you are keeping for it in your timetable, in your timing, in your capacity. Right. I think with each of your, whatever your scorekeeping, whatever you're keeping track of, you're including a deadline, so to speak. Like in the next 90 days, I need to have spoken to X amount of advisors on this topic. Or if I know I'm interested in ESOPs, I want to make sure I speak to three other leaders in ESOP companies and learn about their experience. in the next 90 days.

[22:26] Deadlines. I think it's very important to highlight what you said and how that is different than deadlines that may appear as you investigate an ESOP transaction. And so there are certain times of the year where the deadline for a certain benefit or structure may lapse or has a precondition. And then everyone likes to close everything at the end of the year so that everything is rounded out.

[23:00] This is to understand that deadlines created in the transaction are different than ones you set for yourself. And don't let the momentum of a transaction take you away from what you're intending. Let it inform you on what's best for you. And you've heard me say a number of times that any deal, any transaction kind of takes on a life of its own in momentum and in inertia. And you can get swept up in that to do a certain thing. But retaining your flexibility and your agency throughout that process and just knowing why things have to happen and being comfortable asking those questions like, why does this have to happen before 9-15? Why does this have to happen at the end of the year? And get answers that satisfy you and understand the implications of not doing that and what that may take from you or offer you. Great.

[24:06] So what is our fourth and final pillar? You're building margin. So our fourth pillar is margin and capacity.

[24:21] So again, you're not going to run a marathon tomorrow. You're not going to be able to sell your company to an ESOP in one day. The race is a number of months and activities that happen in sequence that are going to be very new to you because it is unlikely that you have been through an ESOP transaction before, but you have been through projects you have been through very difficult circumstances and you have worked through those and we are just asking you to incorporate a methodology here that will help guide you to that incremental lift for that transaction. So that you're building margin in time, you're building margin in muscle, you're building margin in leadership. You are kind of greasing the wheels of the information flow that you're going to be asking from people that may not be in your tight circle in the beginning as you're considering this. And if you don't, if you and your leaders and your company as a whole is already acting at full capacity, a transaction isn't gonna add any growth, it's just gonna add stress.

[25:38] It adds incremental burdens you have the burden of communication communicating to your whole company you have the burden of the administrative load whether it's an esop or not just the transaction process itself has a lot of you know information gathering and it requires a lot of attention from certain people which those certain people can't do at all so you have to delegate, it involves governance complexity so for example in ESOP transactions maybe after the fact you if you didn't have a formal board of directors in place that's something that, trustees like to see so that's something that you'll need to get accustomed to if you're not already and maybe even put together other committees such as like compensation committees or an ESOP committee, just a committee simply there to be in the know of everything involved with the ESOP that's ongoing just because we know that's not something you only think about during the transaction. You have to keep up with the administrative piece going forward.

[26:52] Tell me what you think the difference would be in a company that we roll out the ESOP, right? It's communicated very well across the employee base, across leadership at the appropriate times, both before, during, and after. And then we start looking at these committees that need to be populated. And we ran the marathon tomorrow rather than the training part. So that's one side. And then the other is we built a process. We installed these pillars of this incremental lift before the transaction. Yeah. I think in your first example, when you're essentially not prepared or not taking the steps ahead, you'll find yourself in a place where you're maybe scrambling to kind of throw things together and juggle everything that goes on in the first year of that transition. And it doesn't feel natural because you've never done it before. You're trying to figure it out as you're implementing it. And it can just be very overwhelming and that leaves room for error.

[28:20] And I think most of the time in a transaction, we want a smooth transition. So on the other side of the coin, if you are prepared, if you have already started thinking, Okay, we're probably going to do a transaction in the next year or even in the next six months. Let's put together certain committees now where we're already meeting routinely. We're used to having additional responsibilities outside of our day-to-day roles. We know who to delegate what to or where maybe certain things need to be reallocated so that our focus is in the right spot at the right time. We haven't done this before, but we've been doing something like it. Right.

[29:16] The opposite is if you haven't done anything like it before, then really what's going to happen is you're going to borrow that from your performance after.

[29:26] And that's the muscle listeners. Listeners, and once the ESOP is in place, that all the things that Mackenzie mentioned, the administrative load, the governance differences, how to communicate with culture or with the team about the culture, all of those things are going to not just be new, but feel new and take more time. And so you want to prepare for that as as much as you can which is why why we're helping with this the the ESOP itself just like we've said with the concept of ownership just because it's on paper doesn't make it mean anything to the individual it doesn't automatically make them make employees just like you it doesn't say I have a mindset of ownership they have to develop that over time We're just trying to help you pull forward the, oh, now we have some things that are specific to the ESOP afterward, but we've built this margin in order to absorb it without impacting performance and making it feel like it's another monumental thing that occurs. You can dwell in the kind of the power of the moment with the transaction since everyone will just be pivoting from one type of project to the next while having the muscle already built. Mm hmm.

[30:55] It allows you to execute with intention and with maybe some clarity, less chaos. It's not going to be perfect. I don't think it would ever be perfect, but it at least makes you more prepared, not just eligible for a transition. So now the other side of the coin. a couple of things to highlight when you know whether you're headed in the right direction or the wrong direction. And so the first one that I want to mention is that accountability does not equal culture talk. So I can say I tell my children to do hard things, Um, but if we don't do them and I don't hold them accountable for getting through those, those difficult things to the other side, uh, I can say whatever I want. Uh, and it does, doesn't mean that that's what happens. So if we avoid hard, difficult things and hard conversations and we miss commitments and we underperform at work, then that culture without accountability is just politeness. Mm-hmm.

[32:24] I think the hard conversations sticks out to me i remember um one of our clients telling stories about losing people or terminating people in the company simply because they did not align with the values of the company and no matter what that looked like and whether like how it tied back to the value of the company i think that's very a very powerful um, accountability move. It's like, hey, you knew these were the values of our company. We don't just say them. We don't say they're not just on the wall. We actually hold you accountable to them. That's a cultural preservation move too. You keep what's important. Yeah. And that takes the courage of a leader that we've talked about before on the show. We've also talked about this next one, so it shouldn't come as a surprise to anyone. And you can't be the safety net founder.

[33:33] And you know that there have been times where everything has worked because of you. And you also know that that doesn't scale. You also know that that doesn't transfer well. And if the business only works because you're paying attention, then it doesn't work yet like it should. That will be sustainable after a transition to the employees in an ESOP transaction and unlikely to another buyer as well. Yeah, I think we've talked about this before with you can't be the one catching every dropped ball. You have to share, you have to let others catch the dropped ball sometimes and you practice that with letting them on certain situations that are maybe not, Like disastrous or it's acceptable for someone else to be able to handle and put out the fire. It doesn't have to be you as the owner, the founder, the leader.

[34:38] The third one is an appeal to your financially savvy side which is a high caliber high quality high functioning team with execution discipline is really what buyers value because it demonstrates the opposite of what we just mentioned in number two that other people are sharing the load and the responsibility in a way that supports a larger structure, a stronger structure, a more sustainable structure of business. And while the money part, the value part of your shares is what you're going through this transaction for to some extent. It's not just the financials and the numbers on the page that show the story of what's going to happen afterwards or give confidence in the growth of the future. The question comes back to who is delivering and how can, do we believe that this team is going to be able to deliver what they've done before and what they're saying will happen in the future?

[35:53] And i think something that right i think something that even adds to that is not only do you have like an existing strong leadership team but are you already thinking about the next generation of leadership or do you already have some sort of bench that you're training or you have an idea that people that you're mentoring to to move into those positions down the road yeah.

[36:19] So we have a simple exercise for you that we'll put on our workbook page to help you think about, man, Jason, you've said all these things. We've got four pillars. We've got three warnings. And then what do I do with this if I'm starting from scratch? How do I keep it to where I don't reveal to my whole team and all of my managers and all of my leaders that I'm contemplating doing an ESOP transaction before we've even done any investigation? So that's what this is for. As you're working through our workbook month over month, this page is going to have just a few questions for you so that you can start implementing this in different ways or having them work the muscle as you contemplate your exit. The first one is asking, what are the five most important things we need to get done this quarter?

[37:17] Really open-ended. And that's not for you. That's for you to ask. Does that make sense? Yeah, it shouldn't be answered by one person. It's putting together the thoughts of whoever you have chosen or the leadership team, I suppose, and what they're all in charge of. They all have their own issues in their own department. So what, out of all those issues that exist or all of those to-dos, what are the five most important? And we have that sneaky little deadline of this quarter, right? Helping us to think about what's most, not just most important, but most timely. Then we got to know who owns each one because if two people own something, no one does. So question number two, who owns each one? And three, I like this one. How do we know if we're winning?

[38:23] I think this ties back to the scorecard. You'll know if you're on track from what you defined as your goal within that scorecard. And then the one that no one wants to ask, number four, what happens if we don't?

[38:52] I like that if you you should think about these for yourself and then you should ask these of your team is what i'm uh recommending isn't the right word but it is today with only half a cup of coffee in um is and then think about you what would the same answers come from everyone in the, room and uh there's a difference between um a difference of opinion and dissent and mutiny i i don't think you're going to get mutiny god i hope not uh but it is okay to have dissenting voices or differing voices and how all that happens because in in the gap or in the differences is where you're going to discover as a team what probably should be worked on and then prioritize So it's mini-strategic planning in a, hey, how do we do this? And then how do we implement this? And how often do we want to do it? But these are great questions for you to ask.

[40:01] All right. So listeners, again, I want to thank you for enduring another Foundations of Transition with us as we go through what is arguably one of the more boring titles that we've come up with. But I think the content related to it highlights why accountability and execution discipline are going to matter to you in this stage as you're investigating to prepare you for the lift that you're going to have to take during a transaction. And then it's going to equip your team to handle what comes after as, oh, we're comfortable with this. It's just new, but we've done things like this before. And what we're trying to accomplish for you is we're helping to prepare you to be capable of a transition and not just eligible for it. So what we'd like for you to do is share this episode with a friend or three, subscribe, like, and join us next time on the Journey to an Aesop and Beyond podcast. Thank you.