Bonus Episode: A New Way to Sell Your Business

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week in a special bonus episode Michael Brown co-founder of an Innovative company called team shares explains how he and his co-founders are bringing a Fresh Approach to a big challenge team shares is buying the small businesses of Boomer owners who are ready to retire but in many cases struggling to sell once the business is bought team shares is turning the employees of those businesses into employee owners which is intended to strengthen the businesses while also addressing income inequality so far starting in 2020 and flying largely under the radar team shares has already bought more than 60 businesses most ranging between $1 million and $5 million in Revenue along the way they're learning some intriguing lessons about what it takes to build a business even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations brought to you by our sponsor the great game of business will let owners know they are not alone in facing challenges same thing with our daily newsletter the 21 hats Morning Report which Jak magazine named the best newsletter for business owners and which you can subscribe to for free at 21h hats.com where you can also find transcripts of our podcast episodes and lots of other articles and interviews joining me on the podcast is Michael Brown co-founder of Team shares the episode is titled a new way to sell your business [Music] welcome Michael it's great to have you here if I'm not mistaken you kind of have something of a a corporate m&a Wall Street kind of background how how did you get interested in small businesses thanks for having me Laur I started out of college I did about seven years of investment banking mostly work in in sort of teams that were advising large companies that were either selling a company or helping another company buy a company right and so I I sort of effectively you know took that skill set and you know my path to becoming a business owner and entrepreneur originally was to go out and to go buy a single small business um bought an electrical contractor in western Canada moved there left New York for two years to go you know figure out how to run it um and over time we ended up buying you know about eight of them in total that was the sort of the start of my career uh and then transitioned into entrepreneurship and business ownership from there how did the business do tell me about that it did pretty well I mean so so you know it depends on what time frame you measured it because in the first 6 months all of a sudden the revenue was down because there was sort of a a mini um recession but but overall I think the business Grew From about sort of on average 5 million of Revenue originally when we first bought it and I sort of stepped in to be the president and today it does you know more like 10 to 12 million of Revenue just the same as any small business owner lots of bad months and bad quarters and mistakes we made it sort worked out in the end but really had had to learn by trial and error how to run the business what was your goal when you bought the business where did you think this might lead directionally a little bit similar in a microscopic scale to team shars but without the employee ownership I hadn't had that Insight originally so originally thought that we'd probably buy fivey businesses over 10 to 15 years of in no rush and and just you know one of them would end up sort of being really really interesting to help try and work on and grow and and that would be it and sort of that was what I would spend the rest of my career on and it took several years to have um so the insights along with Alex and Kevin the other Founders that led to led to team shars can you give me a sense of what the biggest surprises were when you actually took over a business and had to run it yeah I mean honestly the first one is so embarrassing in hindsight but um I actually didn't realize because my entire career was in really like financial analysis and relationship management and some form of sales I had really never managed anyone I managed you know one Analyst at a time I actually didn't understand that the job of a president of a business I guess you typically the business owners or president in my case was to make decisions and it struck me in the first sort of like hour on the job when someone from the safety department came in and said hi I need you to make a a decision on our safety program and my first question was of what's safety the sort of second thing I'd say is that um you know I'd heard this phrase from an acquaintance of mine that had had done something similar he also came from Finance originally and he said you know Michael businesses are not spreadsheets and you're going to learn this really quickly because going into it I was very you know didn't want to screw it up and was I only know new businesses through spreadsheets and presentations and I think I knew I knew conceptually that that was true but it just took time to really understand how a business actually works and the Very human interactions that go into collecting cash and making it work these are the kinds of the founder of a small business that opens the doors learns from the ground up and I had to sort of plop in and not know how the business worked and then also learn how a business actually worked financially from the inside so I'd say those are the sort of two big two big surprises at this point you've got a business where you're trying to address really big issues that affect most if not all small businesses you know in terms of how a business owner gets out of the business when the time comes and how employees are compensated and do they end up with you know a Secure Retirement or not did you anticipate that you would end up trying to address issues like that or were you buying a business back then you know for the reasons most people buy a business very much the louder La um again like I said it was sort of the original goal was to um you know buy sort of five businesses eventually a couple years in you know Alex one of other Founders invested alongside uh me initially and then eventually became a partner um and jumped in to help run and and acquire other companies and transition them but no it was it was intellectually interesting we thought that it would make for a good living but it was a massive pay cut to to to making the sorts of salaries and bonuses we were making before and I think it was a combination of like like we should build something in the end that's meaningful and worthwhile but it was really for its own sake uh and so we were sort of just really trying to learn how small businesses were acquired how they were transition and how they were run and then along the way our largest um you know we didn't know what to do with this Insight right away but our largest customer um at the at the biggest company was a sort of you know almost 10 billion annual revenue fully employee owned um construction business in western Canada called PCL and a generation prior it was bought from the founding family for something like $40 million so that needless to say that sort of pequ our interest and began an intellectual Fascination back in sort of around 2015 2016 but it it took many years from us to sort of have the insights that led to team shares were there light bulb moments where you realized you know first what the problems were and second that you might be able to come up with uh an attempt at solving those problems yeah I think there were there were a couple and again they were spaced out over I want to say about five years or so so I think the first light bulb moment was that we were able to get the Acquisitions done quickly and cheaply in 60 days and while maintaining great relationships with the selling owners right I mean I think to this day we're still friends with with them right and so I think we we're able to basically remove almost all the cost of acquiring a small business compared to sort of what you know sort of a typical search fund or sort of a larger slightly larger sort of you know private Equity stall acquisition would entail that that was one thing and I think the second thing was the just the observation around employee ownership and and because in Edmonton Alberta you know because PCL was of the largest one of the most respected and largest companies in town there were other companies that become employee owned and so just realizing that the the power it made total sense that employee ownership you know was good for companies and good for people at the same time it sort didn't really know what to do with it for a while and then I think the third Insight is as we started to realize that we'd like to sort of work in this industry for the rest of our careers but there probably was something bigger to do we didn't know what yet uh all we knew we certainly didn't know it involved employe ownership what we did know was that there was a societal problem even though we knew viscerally how hard it is to sell a small business we it we just honestly didn't know that the sort of stats around sort of you know 70% of small businesses that try to sell end up not selling you know that there sort of three million of these things are owned by people in the sort of baby boomer cohort so I think those those were some of the sort of like predecessor sort of light bulb moments and then I think after you know 2018 we started working together on what would become team shares and the Eureka moment was realizing that you the reason these things are even for sale in the first place is frankly because of the GI bill in our opinion um you know as College became you know in a really great way became very accessible uh to a lot more people it became you know an aspiration of of small business owners who do really well financially and their kids all went to college in general right and so businesses never used to sell they just used a transition generally within a family but now a lot of the kids of the owners that we sort of see their kids are doctors or dentist or they work at deoe or something like that and so we thought H the Eureka moment for us was that it just really solve this problem at scale that we could be the financial bridge that basically bought the you know bought the company from the retiring owner um using the expertise that we had developed and we could basically be a financial bridge to let the employees end up owning the business and in doing that we'd do a couple things so um we were never interested in building a private Equity business I mean it just we turned down offers to join private Equity firms could have sort of done that it just wasn't interesting us we were interested in solving a problem at scale and so we thought this would be interesting because we could basically be the common sort of initial buyer of the businesses what's the distinction you're drawing between what you do and what private Equity does so private Equity uh tends first of all to to play in a um you know generally with larger companies that sort of generally start sort of at least 5 million of profits uh and scaling way up into public companies and take private so their model as as you know some of your listeners will know is to you know to raise money from um foundations and endowments and institutions buy businesses and within 10 years sell the business and so you know our strategy is is not to sell the businesses it is to to let the um employees earn the 80% of the stock ownership through time through service over 20 years so the businesses in the design of Team shar's business model will never be for sale again the the business is the seccession loop the sucession problem for all the business businesses we we are working with basically the secession uh sort of Gap is broken or or filled in another way because you don't ever have to sell the business again they just end up 80% employee owned and 20% team shes owned could you walk us through uh an example just to to show us how this works pick a typical company yeah so we we work with businesses that you know are as low as a million of Revenue up to 10 million of Revenue and you know our goal is over time is actually going to be to to try and address even smaller companies but we would buy the business from the retiring owner and then we would um you know do an announcement with the key employees um to get them comfortable shortly before closing and then you know have sort of you know internal Champions um ready before a more General announcement and then shortly after announcement we would um issue 10% of the stock basically diluting ourselves deluding team shairs and issue 10% of the stock to the to the employees across the board it's sort of not a key person program it's for everyone who's there who's an ongoing permanent employee of the business and then we would also hire a president and and we vet them and we put them through a one month training program and then support them thereafter because in addition to the financial transaction that needs to happen for the owner to sell their business and and get their some of their retirement proceeds going they also need to transition the day-to-day leadership of the business and so we also recruit um the president so that's that's the that's the the gist of the model and then we transition over um you know 20 years starting at sort of 10% employee ownership and end up with with 80% employee ownership and you've done this I believe uh with about 64 companies in 43 different Industries when did you do the first one the first one I think closed in January of 2020 and we did you know one a month in the first quarter and then we all know what happened um in March and April of that year and so we decided that it was in the best interest of the company to stop doing new sort of retirement um sale Acquisitions and to support the existing companies and at that time is a very small company it was three founders and you know two other colleagues and so we we sort of spent the year supporting those companies get through that very difficult economic environment and start to build software to be you know to be ready on the back end to start um you know doing more more of these retirement Sals you said uh your typical range is between 1 million and 5 million million I believe a million dollars in revenue is is not a lot of money and you need to replace the owner with a president who's going to run the business you need to give Equity to employees you need to invest in the business to grow it presumably how does that work where does that money come from yeah there's a couple of questions in there so the way we Finance buying the businesses from the retiring owners is s very similar to any sort of financing which is a a mix of equity and debt that we we provide and so that the owner gets their you know a significant amount of their cash out at close and then you know some ongoing payments over time in terms of the size question within there so we will go as low as a million of Revenue and sort of as high as generally 10 million of Revenue that's just the Topline sales the profits you know can be you know sort of as low as sort of you know1 to $200,000 after U paying for a president um which is a real expense to the business but we have a couple of goals here so one we are trying to address as many as possible and so we all know that the taale skew is left that there are many more small businesses that there are large ones and so to your question around sort of you know how do you make the math work and how do you afford a president generally as we go and address smaller companies a president may start to lead multiple companies um and so that their cost is shared over a couple of different companies where sort of in the you know typical today sort of a a medium siiz um business might be more like four to 5 million of Revenue and you know the president's salary sort of fits fits comfortably in that cost structure and it typically is less than what the um what the you former owner built the business and you know deserve to pay themselves whatever they want is sort of it's less than than what that cost was historically how do you uh value the businesses you buy and and set a price yeah we value the businesses based on the um the cash flow of the business so to be a little more specific basically the a in profit and also considering sort of what the capex capital investment needs are of the business and then we you know we propose a multiple u based on that number based on our own sort of calculations of the businesses financials is that regardless of the industry or does that get taken into account as well is regardless of the industry it's really about the um sort of how steady the financials are and you know potentially what the growth Outlook is do you think you typically come in at market value what a business owner could get if he or she took the time to to try to sell it on the market well these businesses are are on the market of the 81 companies that including the companies that have not yet closed uh I think all but four of them um were for sale by business brokers so they are on the market um and that broker is running a process to solicit multiple offers and you know overall about 50 today historically about you know 50% of our letters of intent are accepted but if you look at the ones where we are um very close to the asking price it's about an 80% acceptance rate which I think speaks to the active choice that that small business owners are making in choosing employee ownership their legacy but paired with transaction certainty where we end up being having a different view on price isn't because we're doing anything Hardball this is maybe one of the Misunderstood things about team shares we actually just have a very different view of what the ongoing cash flow businesses that's generally when we get turned down it's because we just we are at a lower price because we have a different view of what the cash flow is isn't that something that's kind of black and white it is to us but I think that it's not I don't think it's black and white to everyone I think it's very emotional and I think that I think that Brokers and and business owners should I mean we're rooting for business owners everywhere so if someone is going to pay more than what we can offer even though we're we're buying things very much within Market that b should go and they they're trying to maximize their estate in many cases and generally we are very competitive sometimes we've actually had situations where people have gone with a higher offer that was only say $200,000 higher than ours but actually the other party didn't have uh financing lined up it's cheap and easy to to write someone letter of intent but team shares closes 90% of its letters of intent which is basically unheard of and so we've had multiple companies that actually had a busted process where they had a they had a Loi signed and the transaction number got closed and they came back you know to work with us it's only been I guess about 3 years since you bought the first company what can you tell us about how theyve performed after you've bought them yeah they've performed really well um I think the you know of the first um 50 companies uh the you know the on average the revenue and the the operating profit of the businesses have grown versus what we expected we think that we're heading into recession and so the numbers will probably pull back a little bit but so far so far so good can you share any specific numbers for ac across the board for Revenue growth or profitability growth I'll decline to share specifics but it it is normal healthy um growth we're not uh sort of doubling the size of the company in a year typically there are some businesses that actually start to really double uh things you know over sort of you know they're on track to double over sort of three or four years but those are outliers most small businesses are we think are driven by the you know the economic cycle and so so things can be ranging a typical growth could be you know 5 to 10% Revenue growth do you treat all the businesses the same or do you look at them and assess the potential for growth uh if there's greater investment and put more money into some than into others in general the um how the rules are set um are are the same for all companies how our share program works um and how presidents are hired and all stuff that's that's all the same we really um you know most of our companies are going you know doing doing very well there's a small handful that you know have declined right since we bought them and they're they're not in trouble but they need they need help and so we do really focus um we've never had a write off we've never had a company fail and we we would like to keep that track record going you know as long as we can we do spend time helping companies that need to you know to return to a normal profitability and then I think for for companies that have growth potential uh we're increasingly spending time with those companies too and but I think the goal of of employee ownership and having these really talented presen and they're you know leading the companies along with the other middle managers is to try and make them that the biggest way that we can address wealth inequality through employ ownership is by helping as many companies as possible you know we're we're hoping to do this thousands of times and in order to do that the companies need to be self- sustaining both from a both from a financial standpoint and from a leadership standpoint so we are trying to help the companies really act quite independently um on a day-to-day basis where are you finding your presidents who take over these businesses are they people who have experience doing this kind of thing very few of them have experience running a small business and we have a fairly contrarian view that we actually think um that business Acumen and empathy and and general leadership skills or what are what are helpful and required and we we nearly in all cases deliberately recruit vet and train someone who's actually not from the same industry because what we just sort of learned the hard way that actually hiring someone from within the industry often creates a lot of conflict with the existing employee owners because there are things that are done a certain way and someone from a different company will have a very strong view on how the operations should work and could really change things in Ruffles feathers so they the people that we do hire I mean they're people who are you know have worked at Walmart and USAA people from McKenzie people from BCG people from deoe you know we we've started recruiting you know out of business schools too they all have substantial business experience and you know some of them also have military experience too so they have leadership experience and business experience um but but by Design we are we are recruiting generalists and training them to focus on leadership and teaching them the skills of how to run a small business that's really interesting there there's a a pretty strong debate about whether you can teach entrepreneurship or not a lot of people think you can't that the only real way to learn how to run a business is by running a business many entrepreneurs learn the way you did uh trial and error making mistakes and figuring it out what have you learned about teaching people to run a business I mean I think that's exactly right and I think that that's um so I think our whole model is set up for that and we expect that there is you know a real learning period I mean I think in our view uh and I think most of our presid agree it takes about 6 months to drop into a business that you've never run before in an industry you've generally never been a part of before it takes you about six months to even on probably a 50% confidence level that you s of how the business works right and so we do retain the former owner for a lengthy transition and we focus on company what's lengthy lengthy six six months and sometimes uh we generally now have the president in there within two to three months and that's six months of sort of actively being involved in the business and then you know generally these relationships are really good and you know the the president will have have lunch you know soort once a month with the owner continue to draw on their expertise but we're also focused on businesses that have a deep um you know bench of of you know office managers and a sort of operations Director people that are really they they now have you know they're now earning stock in the business and have even more leadership duties but they they are key key people in running and transitioning these businesses so yes I I think the other thing I would say is that I think founding a business and running a business is already at some level of size those are two totally different skill sets and so what we're describing here is is not starting a business from scratch I would agree having done both of those things those are very different skills I don't know whether they can be taught or not but these people are being dropped into train to run a company not to sort of start one from scratch from you know zero Revenue day one are you expecting significant growth out of these companies or are you okay if they continue to perform as they've performed in the recent past so the whole model does not rely on um the companies to to grow in any meaningful way we just expect them to grow sort of the way they have in the past but that said what we're seeing um in the first sort of 50 companies that you been close and been with us for you know more than a couple of quarters is that the pattern that's occurred over time in employee ownership is happening again at Team shares which is that when you give people a stake in the outcome when you give people a financial asset equity in the business and you sort of re-energize growth um because one of the things that happens is that the retiring owners they need to run the business very conservatively before they before they sell there's a lot of reasons for that and so everyone is aligned for growth they're excited about the new chapter and so I think what what we expect will happen is that this over a long period of time that most businesses will grow faster and become more profitable but we don't need that to happen we just think that that is part of what the magic of employe ownership is do you have uh a set formula for what percentage earnout you require an owner to accept and over how long a period that takes to get paid out we don't have a preset formula there so that's negotiated deal by deal it's negotiated typically if there's an ongoing payment it might be it might be over it's typically over 5 years I don't want to provide any tax advice but um generally sort of the installment method allows someone to defer taxes for up to five years so you do anticipate an owner being involved for a significant period of time no they don't they don't need to be operationally involved but what we like to do is to have a really strong ongoing relationship um with team shars so we have someone who runs a former owner program and take you know takes people on trips and you know they're going through a very big emotional transition to go from something that you know either they founded or with their family founded and you know it's been their their life their source of fulfillment and they made an active choice we're only working with owners of retirement age and so you know it's time to retire but it's still hard right and so I think we're very focused on making the transition happen quickly so it allows the organization to move on to the new chapter away from family ownership which is a wonderful thing but is different than employee ownership and then keep the owners as engaged as they wish to be with us afterwards and we're starting to seed you know a real community of former owners um that you know had had chosen to make employee ownership their their legacy with Team shars how do you view the purpose of that Community is it something you're doing because it's helpful to the owners or does uh Team shares get something out of that as well I think I think we we each get something out of it we think that for them to properly do the transition that a former owner even though they made the choice so they actually need to come to CP with that and so helping them through that journey in pure based settings of hearing from former owners that have already gone through the Journey and sort of sharing their experiences we think is very helpful and then I think from a from a team sharers perspective I think we always view things as win-wins is that not only is that the right thing to do but one of the strongest things we can do with our brand is to have you know nearly all of our former owners say that yes they would they would sell to team chairs again to make to make employeeship their retirement Legacy and and and that's just about the case in all cases and so yes it's a win-win it benefits them and it benefits us one of the reasons a lot of business owners struggle to sell their businesses is because they struggle to get themselves out of the day-to-day they're too much a part of the business operation and uh that's a that can be a financial problem it can be a problem just in terms of getting the work done and makes it hard to transfer the business to to someone else can you help business owners in that situation not yet we really hope to in the future but typically we um need at least two other managers or key employees um you there's never sort of it's very rare for there to be something like a CFO in place that that's not affordable in a small business but the sort of you know two employee business that's that is actually too small for us right now we have no set timeline we hope to address and serve their needs in the future but but it's not something we can quite do yet where does the money come from that goes to the employees as as the percentage of ownership increases over time does that have to come out of the business or does that come out of your investment fund the money that's used for the purchase of frund is from a mix of um debt and Equity um there are investors behind Team shares and in both sources of capital in terms of the initial stock grant that is team share is voluntarily Grant is diluting itself uh by by granting you know 10% of of the stock because we believe in employ ownership and we believe that it would be rude and frankly impractical to ask people to write checks um to buy into the business and so we make the gesture to Grant 10% of the stock to the employees that are there at the time of transaction and so they they earn that over four years through through service through vesting of their stock and then um we all share together in um you know dividends that occur and team share sells back at stock over time so the the money that is used to transition employee ownership is coming from the cash flows of the business the debt that's created is that debt there's no debt on the businesses so team shares does take on some debt um at its parent level but there is no debt on the businesses so basically if if a business had $100 um of sort of extra profit that could dividend um you know the employees would get their piece of the dividend and team shures would get its beast and that we would also we would also sell back our stock over time to and so that's what that's what transitions employee ownership over time to increase the percentage ownership of the uh business until it's 80% owned by the employees and 20% by us is there tension at Team shares in the way you run the business in terms of to what extent are you addressing societal issues and to what extent are you trying to make money and turn a profit for us there's no tension because we believe in positive some thinking and we think this is played out not only in in large scale employee ownership environments but it's also played out in the tech sector so I think if you go back to you know the 1970s that the first sort of you know so stock options are a different you know different instrument but um you know was really Arthur rock running around Silicon Valley convincing people to you know give stock options to management right and then eventually over time by we time we got to the '90s uh you know sort of widespread you know employee stock options existed in the tech sector and I I think a negative sum view of the world would think oh but I'm getting diluted or we're giving money away but we would argue that the success of the US tech sector happened is like a necessary ingredient of widespread employee stock options is a form of employee intership it's not quite the same as our model but we would say that it would not have had the same success without that ingredient and that it created value because it aligned everyone to give them a piece of you know skin in the game and participate in the in the creation of the value of the business and so I think that there are people that you know are confused and think oh is team Shar is a charity or is it you using employee ownership as a gimmick and it's neither we are a for-profit capitalistic business that has a different view of what capitalism should be and that it involves sharing uh in the economics of the business and that the only way that we can scale employe ownership is by being a profitable business to keep reinvesting our profits and our cash flow into to making more retirement sales happen and eventually funding other employee ownership products in the future why aren't you just doing esops Employee Stock ownership plans how do you think about that and is that something that you considered when you first developed your model yeah so we we have um you know great admiration for the ESOP um structure and we think it's been tremendously successful for America and for American Business we focus on a really underserved market for employee ownership and that's the what we call sort of the true small business market right down to of Revenue and 1 to 5 million of Revenue so generally we're working with with really really small businesses that haven't historically been a part of ESOP Community but we don't compete with esops we think they're wonderful and we're rooting for employ intership in all forms esops come with a huge tax advantage you know the government decided to try to encourage employee ownership by telling owners essentially that they do not have to pay uh the businesses don't have to pay taxes on the money on the profits that go to employee owners that's such potentially a valuable tool did you try to make use of that it must have been hard to walk away from that opportunity I would think the tax benefits of the Esau structure are are incredible both for selling owners and for um for the companies that are employee owned we we don't benefit um from them what is highly differentiated um and appropriate for our model is at the size of the company so down as as low as that 1 million Revenue market so expanding employee ownership into that true small business size the other thing is is that because we are the buyer for the small business that there is a sort of traditional counterparty that and a common common initial buyer that's catalyzing this and serving as a sort of financial bridge to employ ownership and so what's very helpful about that for for all stakeholders um including the Brokers that represent the owners including the sellers including the employee ownerships and the presidents and our is that every time you do something you learn from your mistakes and you make your model better just like the reason that airplanes don't crash that much anymore it's because they fix their engineering they fixed their safety practices and and planes at least in North America rarely crash anymore and so a very similar sort of learning curve you know has been experienced at Team shares where we didn't have everything figured out in the first one and I think that the first company sort of knew that and we've now done it you over 60 times times and they generally go pretty well so being that common buyer that's catalyzing it is something that's always that is something that's quite different too well I also think it's really worth emphasizing that with an ESOP you are perhaps changing ownership over time but you're it's not a succession plan you're not providing new leadership to take over whereas you do accomplish that again esops are great and I think the big difference is that you know we really just focus on the small business market and we help facilitate that financial transaction and that leadership um transition by by bringing in the generalist um president to help lead the rest of the employee owners into a new new chapter how do the do the companies that you buy do in terms of employee retention they do very well we have about 1,600 employee owners that we've issued stock to through our employee ownership stock um stock software and probably getting close to 300 of those people would be you know the sort of key employees the right hands of the owners that we would speak to before closing and you know fewer than probably I think five have left it's a very very small amount so that is that is fairly remarkable lack of turnover in many business models you know there are some pizza shops that team chairs has has acquired to make employee owned and you know there's very natural turnover it happens in trades businesses too so we really we were we're rooting for all long-term attention team shs actually by the way doesn't make hiring and firing decisions we only hire the president except for rare circumstances if something really um unethical happened we don't step in um to that we actually we hire and train and and hold the president accountable and then them and the other managers make the hiring and firing and promotion decisions on the ground I believe I read in your website that all employees are retained and and earned stock in the company at the time of the transaction I assume that doesn't tie the president's hands in terms of firing people who need to be fired going forward yes every um every employee owner every employee that is there before um before the transaction they all participate in stock any you voluntarily choose to accept it and at the same time being an employee owner doesn't guarantee someone a job and so it's their own you know it's the the team on the ground the leaders of the companies that make decisions based on people's performance their attitude all the same normal things that would have happened before before and after what happens when an employee is fired or or leaves is there a vesting period the employee owner leaves the company either either on a voluntary basis or because they've chosen to to go and do something else at another company or move town or if they were let go the share that they had earned through a period of time would be bought back from the company um you know with cash so they they really do own directly own common stock in these companies where does that cash come from it comes from it comes from the companies do you have a batting average in terms of uh the performance of your Presidents what what percentage of your presidents are still in place from day one we have a pretty pretty high retention rate there probably there's been about 10% turnover which I think is you know a necessary evil um I think the job is not for everyone and there are some people that get in there and uh realize that you know they maybe thought it was going to be something more like a strategy job and a dust job it it's a challenging job by definition you're taking people who have not worked in that industry and putting them in charge of a business with a host of employees I don't have the exact am of figure tips but I would say I think roughly so far we've hired about 60 presidents and maybe six have have um either been um managed out or you know have decided that it's not for them do you feel like you've kind of solved the puzzle of what it takes to run a small business in America do you have you learned things that you would share with us that you think are really crucial to a successful small business operation so I think we've learned some things but I think that um you know thoughtful people are always learning and are never done learning but I think you know a pattern that we may be starting to match is something like why combinator I think Paul Graham the founder one of the four Founders I should say of of why com n minator has has written that you know after they they observed a pattern that after partner at YC had advised 100 startups they had sort of seen most of the challenges right so so I think that we are sort of approaching that similar pattern um we definitely don't know it all we're constantly making new mistakes and learning and diagnosing and trying to you know fix them so that we don't make the same mistake again but I would say I think the biggest things that I realize your audience is not just people who are um ready to retire it's it's a little swath of um business owners who may have just started or be in the middle of their career I think the biggest things to focus on after the companies crossed that sort of million Revenue Mark and you can start to afford um to add other people to help other sort of you know managers and office staff it's worth really investing in um you know processes so things like that book traction and the EOS system there there are other tools out there and we're not here to endorse it but I've used it in the past just at at an individual level and I think it's great right so really helping that you know that transition the classic sort of emyth challenge of transitioning from a technical person to a business person and I think that that you know they're great Frameworks and coaches out there to help with that whether someone wants to you know sell eventually or just kind of you know own the business until the day they uh until till the day they pass away you know they need to to be able to get some of their time back and their life back and maintain sanity really build a team and build some processes I think the other thing is that a lot of people under invest on their financial practices and I think it's worth people trying to engage you know either whether it's their local accounting firm or a fractional CFO and really try and get good monthly numbers it's not something we require we we we don't require them at all we look at the annual financials of the business but we have to come in and really help the businesses we have a significant accounting team that helps them try and get accurate monthly financials I think a lot of small business owners are acting uh and this is it's not a criticism it's just a it's a reality that they are acting you know running the business from intuition sort of focused on you know where the bank balances and then the financials meaning the really the p&l and the balance sheeters Ser of an after the fact scorecard and they're running the business off of operational data and you need both in our opinion but I think really helping you and and you don't necessarily need anything that fancy you just need sort of QuickBooks online or something like that and you need someone um from the outside looking in um and so people talking to their their CPAs um and other advisers are trying to get help from the outside to make sure their numbers are accurate uh I think the other like General thing is that small businesses are often not charging enough a lot of small businesses are serving big companies that have you know huge profit margins and small businesses start off by trying to price their way in by being you know the cheapest electrician in town and and just frankly need to sort of charge more in order to you know retain and pay their teams well and eventually afford benefits so that's that's another thing we think that small business would would generally benefit from Michael I've really enjoyed this I would love to keep in touch and hear how things continue and evolve my thanks to Michael Brown of Team shares and of course to our sponsor the great game of business which helps businesses Implement open book management and employee ownership you can learn more at Great game.com wait wait don't leave yet if you have a question or a comment that you'd like the 21 hats owners to address send it to me by replying to your Morning Report or by email at Lauren 21h hats.com that's L ren21 hats.com do it now before you forget and don't be afraid to tell Jay what you really think he can take it and if you got something out of this conversation help us reach more business owners tell a friend subscribe and review us wherever you get your podcasts follow us on Twitter subscribe to the Morning Report at 21h hats.com this episode was produced by Jess thubron founder of blank word Productions okay now you can leave thanks for listening everyone [Music]