Lumber Traders incredible journey as an ESOP

[Music] okay well Denny thank you again for um joining us virtually um you'll be off having fun in Europe when the webinar is going on um so thank you so much for taking time ahead of that and um you and I spoke once a little while ago um and I learned a bit about Lumber Traders but I would love to just start at the beginning for um folks listening just um if you could tell us the story of um like what was the employee ownership Journey for lumber Traders yeah absolutely well thank you for having me first off um so Lumber Traders has been in ESOP since 2004 prior to that we uh had a couple of owners Arnold and Debbie Shon who had run the company for about 20 years and they were looking to retire so they were looking at different options for their exit strategy and uh of course there were companies who were interested acquiring but uh we've got two businesses in the same town so it's a little bit of a smaller area and most of them were interested in Closing one of them and uh Arnold and Debbie really wanted to protect the employees jobs and also the businesses one has been around since 1906 and the other since 1960 so they're really established in the community uh so as they're trying to figure out what their plans are they discovered the ESOP model and they started looking at that and they said well this is really kind of a win-win they can get paid for you know building up the company and all the work they did and they can pass that Legacy on to the employees so ultimately that is what they did so 2004 uh it switched over they did sign on the bank loan as well sometimes that's a little tricky to get the uh the financing necessary for that uh but they were willing to be involved so they could make it happen for the employees so that's kind of the journey that we went on to get to where we are today and that's now 20 years we're celebrating 20 years as an Esa That's so exciting and I think if I remember right you weren't there from the beginning right you tell tell kind of your story like um how did you start at the company and what do you do now yeah so uh I started at the company seven I think eight years ago now um initially I had moved to the area and I had a a pretty good history in the building materials industry uh I just wanted to change in my career I came on as retail sales manager just to get my foot in the door and very quickly within about six months moved into the store manager position and from there I thought okay this is probably where I'm going to be for a while and then our CEO kind of unexpectedly announced that he was going to be leaving and uh we have been doing a lot of work culturally and education around the ESOP I know we'll talk about that as well and we really wanted to make sure that we kept on that track so uh the board interviewed me for the position um I started out as interim for six months and then full CEO after that and that was just about five years ago now so uh very unexpected and also I should add I had no idea what in Esau was when I started they asked me are you familiar and I said I've never heard of that right so it was a Learning Journey for me as well but it was very exciting to see the benefits and and see the impact that that had as well yeah and we could talk about the education piece because you and I talked about that before and I would love to just kind of describe that to everybody that um it seemed like if I remember C what you said is that people didn't really get it they thought maybe it was like a scam or like you know there was like some suspicion if anything you know like it wasn't on people's minds and I'm I'm curious to hear about the like before and after from before you were really focusing on employee education and then now that you have like how do people understand what does it mean to be like an employee you know stock ownership you know participant like what does that mean to people there how do you guys you know make that sync in to folks who are working um at Lumber Traders yeah people ask you know how how does it work and it when it's working well it's great right you've got employees who are invested in the performance of the business because it helps them for their retirement when you're not doing it well or doing it right or educating people it's a massive expense you know and and it's difficult and like you alluded to people at the time when I came on a lot of people and I should back up people fill in the gaps right right if they don't understand something they're going to answer it in their heads and that's a very human thing and we need to know that people are going to be that way so people had thought it was some kind of pyramid scheme or Ponzi scheme for the old owners who right only did right by the employees so it was like terrible that people have a negative view of this thing so we really had to start with education and sharing with the employees what it looks like how it works why we went this model why the former owners went this direction and get them to understand that and another thing that we did was the statements that we got from our our plan administrator were very vague and didn't really they had no historical information no projection you know if you have a 401k or Investment Portfolio you always see you know where have I been where am I going and what's the potential future return and obviously there's questions about potential future because you don't know what that future holds but we redid our statements and uh to be able to show what this benefit has done and furthermore another big part of the education is when people enter the plan there's a ve a time period to enter the plan and then a vesting period and to be able to show them while you don't have anything on paper today this is where you're going this is the path and that really flipped it from a negative frankly yeah to being something very positive and that rolls into retention and recruitment you know and and keeping those people who are really involved and really care about the business working here because it's it's a challenging labor market right people choices um and attracting people um I know we'll talk a little bit maybe I'm I'm Jumping the Shark go for it yeah go right into that so one big thing that we launched now this is going on the second full year we have a new Department we call it glass works and it is an installed glass Department by the way I I probably should mention we are uh two lumber yard Home Centers in Port Angeles Washington um so kind of like a miniature Home Depot if you will and uh we didn't have installed glass and uh I had reached out to a former cooworker of mine who I knew he wasn't Terribly Happy at the company he was working at installing glass and uh there was only one other local competitor to them who was closing down so I reached out and just said hey how's it going are things a bit crazy he said you have no idea I said hey I'd love to chat and so we got together and we chatted and he said that he was thinking about starting his own company leaving with four of the guys there and I said oh man it's it's tough to start a new business what if you came under our umbrella you know the business right I I'm not an expert on the glass business bring your team you can run it you can be a part of our company and have our backing and we have this awesome thing called an ESOP so I was able to show him and give to him to pass on to his three other guys what this looked like over the next 10 years years and what that benefit would be and that was absolutely key for getting them to come on board with us and uh this last year we did just shy of $2 million of Revenue in that department uh with fantastic margins as well and the employees are so happy and they see where this is going and the impact that they're having and what that looks like for their future so huge win for us and honestly without the ESOP it probably wouldn't have happened you know I was curious when you are recruiting people how what's your like two sentence elevator pitch for the esub like how do you describe that so that people get it right away and that they understand and it's not like a obscure thing for them that's a challenge two two sentences yeah um I think really comes down to we're an employee owned company and ESOP is essentially a retirement fund but unlike a 401k and most people are familiar with that you don't have to put in a dime you just get the shares for working at the company but the really cool thing is you know if you own Microsoft shares you you hope Microsoft goes up right you have no power right you can you can buy a Windows computer but that's not really going to make a difference on that share price so the cool thing with an ESOP is you're affecting that share value which is ultimately your own retirement and everybody else at the company so everybody else is working for each other and trying to make that better as well so if you want to be able to have a controlling interest in your financial future this is an incredible benefit that's a great pitch I love it I think that's a really good summary and you know do you share with people or would you be open to sharing like with this audience what does it mean to the average like new hire to participate in the ESOP and what does it mean for an average like 15year employee or some who's like more established at the company like what what does that difference um mean to them so we just had a company meeting where we went over the new Share value with everybody and I want to say that the average employee so there are some very long-term employees and you know higher wage earners get more shares as well because you get it based on your percentage of payroll um but the average employee the increase in Share value and additional shares that they were given just in this last year was about $133,000 mhm that's a pretty big chunk of change and obviously that includes people who just entered the plan as well as been here a while yeah so the longer you're in it the more that increase in Share value affects your your portfolio or your total balance you know I we had several employees who made more on the increase in their share value and shares they received than they did in compensation for the year wow yeah huge yeah especially considering that you know I don't know what your Workforce is like exactly but a lot of folks who are working in your industry don't even have retirement savings yes right you know let alone um a retirement increase that would be more than their annual wage it's huge and I do want to just mention too because we need to be a little careful with esops because it is a massive benefit and sometimes you know our board is wonderful so I'm not I'm not calling them out in a negative way at all but sometimes we lean too heavy on it and say well we have the ESOP right right right well our wages need to be competitive but we have the ESOP and it's like yes and the ESOP doesn't put money on you know put food on the table it doesn't pay rent yeah so it does have to be a balance between the long-term benefit for the employees but still offering them compelling reasons to be there because it's it's challenging times right now yeah yeah yeah every dollar matters um for for so many people right now um I was kind of curious going back to the former owners I think you I remember you saying that you you see them relatively frequently you have like a relationship with them what do you think that like if you could share you know what what do you think it feels like to them to have chosen this path like do you think that um you know you said that part of the meaning for them was like making sure that these facilities didn't close you know that they didn't want someone from the outside to like come in or like move it you know do you feel like they um are getting I guess value from choosing this way of selling or do you think that it makes them feel proud I don't put words in your mouth like what you know what do you think that they feel about it no I think it's a huge Legacy for them um and you know a point of Pride not not in a negative sense but a good way that they've left their fingerprints and I should also mention both of the former owners usband and wife are on our board of directors um Arnold is the chairman of our board so they're still involved in the company um Additionally you know when we went through the financial crisis you know the ' 0809 that yeah period we were in a rough place and they actually came back and helped run the company uh for free they did not take any compensation just to help us kind of weather that and and unfortunately it was kind of some some poor management that resulted in that being necessary so it's not always needed um from my standpoint it was amazing this was my first time is my first time as a CEO but knowing that they're still involved and they're still on the board and they're still a resource for me to go to and ask questions or get feedback um and they do a really good job of not being overly Hands-On but they're there and they just want the success of the business um I'm fortunate I actually play volleyball with them uh once or twice a week during the summertime as well so they're just fantastic people it's such an amazing Legacy it's not just passing off the business to some corporate entity or something like that you know continuing to make a difference in their community and I think they're very proud of that and we're very thankful for them for that as well yeah and I think do you could you share the numbers again I think you told me when it Con when the business converted to an esab what was the employee count and then what is it now like how much has it grown in terms of employees since it changed over I think and I'm I'm going off the top of my head here I think there were around 45 employees when it converted and we were doing something in the vicinity of $12 million a year annually um now we have 65 employees and we're right around 2122 million in Revenue so it's grown pretty dramatically since that time um you know the Share value just quick math is something around six times what it was when we started so we've averaged 16% per year growth and that includes going through that 2008 kind of that we had and back out the other end that's amazing and then just thinking back to your employees if they were in the stock market for the last 10 years or whatever they wouldn't have seen a 16% return I mean that that's the kind of thing that you can only get with a private company that's doing really well um the owners already they don't have any kind of financial uh relationship with like the debt is paid off to them at this point so they're on the board because they want to be um not as like debt holders right they're correct and we do pay per board meeting for the board Meers but it really it's a very small amount for what so it really is that they care and they want to involved they don't have any Financial stake in the business other than just wanting to see it succeed for the sake of the businesses yeah well I'm sure it's so thrilling for them because as a as a business owner I can only imagine you know you're handing over this baby and you don't want to see it struggle or you know close or have something um you know happen with it you want to see it succeed so it probably feels so good to them to come in and you know see that there's more people there's more Revenue there's new things happening it's probably exciting um do you have um advice so um you know you're you're kind of in the ESOP model you're probably not as familiar with like a co-op or the employee ownership trust you know other things that project Equity does but just thinking of like employee ownership sale versus other types of exit opportunities you know do you have anything that you would want to offer to owners who are like considering an employe ownership path you know I think most owners they care very much about the community that their business is in and the strength of small business and keeping things local and keeping those dollars rotating through our communities rather than just exiting is is huge and massively impactful um unfortunately one of our competitors down the road just sold to a Investment Company wow like okay well good the people get to keep their jobs that's good and all those profit dollars are leaving the community on unfortunately right so the impact of it is huge and and while it may be a little more complicated to to set up an ESOP especially for a first time realistically you can get the same sale price you should probably be able to get the same sales price and there are some things you know if owners are willing to help out with the financing or underwrite a loan or something like that that does help because that's a little sticky sometimes with the bank but if really can be that win-win where the owner is getting what they're do you know they they worked hard they built a business a successful business so they should get rewarded for that right and they can get that and pass that on to the employees which is absolutely huge and you know we're we want to grow our business and and we're looking at potential Acquisitions and things like that too and I think that's such a strong story to where employees can right away jump in and be getting those kind of huge benefits and again the owner still gets paid out it's not win lose it really win-win scenario right right um well is there anything else that we haven't covered that you would want to share or any other kind of like stories that you think might be helpful for people listening oh boy um you know you one one thing that you mentioned if people had invested in the stock market the the key there too is that they would have to invest in that and that's the beauty of the ESOP there's not any employee requirement to put in their own money this is just being put in for them and and such a huge benefit um and again I would just emphasize it does take work it does take training and education for employees to make it really be that win-win scenario um and and trying to remind them throughout the year you know once a year is not sufficient really take that step but like so many things in life the best things are things that take effort right it's worth the investment in that time and that energy and it is such a beautiful Legacy for the community for the employees I I couldn't be happier or more proud that I am working for in ESOP it's it's been incredibly rewarding for me as well oh my gosh well that is a lovely note to end on um Danny thank you so much for um sharing your story and love Lumber Traders story it's really cool I think it can be inspiring to other people to just see another business and kind of like what their what their Journey has been especially one you know that's been like the last 20 years it's really cool and and by the way I'm I'm perfectly willing if you want to share my contact information I could talk about esops all day every day it's it's a passion of mine if anyone has questions you're thinking about about it or if somebody has one and and you want to improve you know we can all learn from each other and I'm more than happy to have discussions or or share any information as well that's super generous thank you so much okay all [Music] right e