Steward Ownership: A Method for Preserving Business Owner’s Legacy and Purpose - The Journey of Sarah Joannides

Student ownership is a method to align ownership, governance and financing to lock down purpose and independence. And this is a broad umbrella that has two key principles. The first is that the profits of the company should primarily be reinvested in the business and shared with stakeholders, not just extracted by shareholders. We call this principles profits serving purpose. The second idea is the idea of self-governance and independence. When you are a mission-driven female founders, likely at some point down the road, you start thinking about how you can protect your mission after you are no longer active in the business. You are likely to think differently as well about your exit strategy for. For example, suppose you wonder, what are your options for exiting your business in the future, because the traditional exit strategies of selling to a bigger business, selling to an investor, or becoming a publicly listed company are not aligned with your mission. You would be happy to know that actually you have a different option for exiting your business and protecting your mission. And this new podcast series of alternative ownership is for you. Alternative ownership is better known as steward ownership. It is not a new. But steward ownership is more popular in Europe than North America. As more and more founders realize we need to exercise conscious capitalism instead of traditional capitalism, the movement of steward ownership is on the rise in North America. In the next few weeks, we will take you on a journey to explore the alternative ownership model and exit strategies that allows you to protect your mission over the long term. As you move along from one episode to another in this series, you will learn the purpose of alternative ownership, the different option of alternative ownerships. Learn from female founders who made the transition to alternative ownership. The different types of investors. That you need during the transition, the legal side of one specific kind of alternative ownership, that is a rising movement in the United States. By the end of this podcast series, you know there are other access strategy option, which likely more in alignment with who you are as a mission-driven female founder. You will also have a good understanding of key steps you need to think about if you are interested in alternative ownership. Today is the first episode of the alternative ownership podcast series. Sarah Jonidis is the managing director of Alternative Ownership Advisor, a firm specializing in helping founders and owners of private companies design and implement ownership, governance and financing solution that align with the mission and protect independence. In this episode, Sarah shared valuable information amongst others, what steward ownership is, the stage of business that should consider a transition to steward ownership, and the steps to get your business ready for the transition from traditional to steward ownership. You're listening to her CU journey, the business finance podcast for mission driven women entrepreneurs. I'm your host, Christina Shackley. If you are new here, a big warm welcome. If we are not connected on LinkedIn, please reach out and say hi, because that's where I hang out and share my business finance tips. If you have been listening to this podcast for a And you are a regular listener. I want you to know, I appreciate you. My podcast won't be around without your support. This is a free weekly show where my guest and I want to inspire you to balance between mission and profit, to create an impact in this world and to achieve financial equality through your business for good. One of the key factors you need to develop in preparation for steward ownership is a financing strategy that raises the right amount of capital that you can afford to pay and is in alignment with your mission. There is one key point that I really want you to understand. An effective financing strategy can only be accomplished if you as the founder, have a good understanding of both the historical and forward looking results. We cannot change the past, but we can learn from the past, learn from what had happened and done, and use those pieces of information to build the future. That's what financial forecasting is all about. If you are at a stage where you Realize you need to build a more robust financial forecast, but don't know where to start. You can download our forecasting guide. Use the link in the show notes to download the guide and start creating a better and improved financial forecast. At the same time, know that we are here to partner with you and guide you in building a financing strategy that is both purposeful and profitable. Connect with us at christinashali.com/let's chat. Sarah Jones, welcome to her CO journey. It is a pleasure to have you here today. It's my pleasure. I'm really honored to be here. Before we dive into more details about what is alternative ownership is all about, let's start with your journey to get where you are today as the managing director of Alternative Ownership advisor. My journey has been this kind of winding road to corporate jobs to business ownership and back again. I worked for big brands like Nike and American Express. Then I co-owned a restaurant with my husband for 10 years. And after that experience, a small business ownership, which I absolutely loved, I wanted to find a company where I could earn a steady paycheck, but that I would also be really proud, just as proud as to say I worked for as I had been when I had my own business. Oddly enough, led me to a company called New Seasons Market, which is a natural and organic grocery. Store in Portland, where I live. So in the beginning, I supported the CEO with whatever projects or priorities arose. And fortunately, one of my projects for the CEO, this was back in 2012, she had asked me to help build the business case for becoming B Corp certified. We needed to take that to our board for approval before we could move forward. And it was in that process that I realized that sustainability and social responsibility was exactly where I wanted to specialize. New Seasons was an exceptional example of a socially responsible business, and I'm a passionate proponent of third party certifications such as B Corp certification. However, there is one weakness to certification, and that is that a company can choose to walk away at any time from their commitments, especially this could happen when ownership or leadership changes. So a few years ago, after I had left New Seasons, a CEO friend of mine shared that the company she leads, which is called Organically Grown Company, was just completing a transition to something called Trust owner. And she told me that this meant that the company would remain permanently independent, and that the trust would be responsible to ensure that the company operate in service of their purpose, not just in service of profits. She also said, We're thinking about starting a consultancy to help other business owners transition to trust ownership. Would that be something you're interested in? And I mean, honestly, Christina, my head exploded because to me this was like the next evolution for those on the big path. It's a way to truly lock down purpose and independence. So here I am. Wow, that is an interesting story. And then I can understand when you said your head exploded, my brain exploded when I found out about alternative ownership advisor. You kind of eluded a little bit about what is alternative ownership advisor is doing, but in addition to creating the type of ownership that is more permanent, what other problem your organization is solving? We know, and we meet all the time, mission driven business owners who are coming towards the end of their career and realize they don't know what to do with their company. We Call it the founder's dilemma. They want liquidity, and they deserve liquidity, but they worry about what will happen if they just sell to the next biggest guy. Will their vision be watered down? Will their staff be taken care of? You know, will positions be consolidated and staff laid off and headquarters moved out of town. They have this dream that their business could last for generations, and they want liquidity and legacy, both. They don't want to compromise. How can steward ownership solve this problem? Steward ownership is a method to align ownership, governance, and financing to lockdown purpose and independence. And this is a broad umbrella that has two key principles. The first is that the profits of the company should primarily be Reinvested in the business and shared with stakeholders, not just extracted by shareholders. We call this principles profits serving purpose. The second idea is the idea of self-governance and independence. So in steward ownership, no one has the rights to sell the underlying company. The voting rights are held by stewards who are actively involved in or close to the business. So unlike unconventional ownership, in steward ownership models, voting rights and economic rights are disconnected. This means that the profit maximizing incentive is switched off, and the company can focus on running a healthy business where profits serve purpose and benefit stakeholders, not just shareholders. And steward ownership can take many forms, but they all share these two key principles. It's really about ownership not equaling control. So voting rights aren't allocated based on who controls the company. They're based on who is best to steward the company. And so management is to function as the leaders and the drivers of where the business goes without just having entities that are only profit driven. Directing their actions. When a founder decide to move away from traditional ownership to the steward ownership, where do they sit in this whole picture? Do they have to let go a portion of their ownership or can they still be part of the company? That's a great question. So it depends. And you're going to hear me say it depends a lot today. Because that's one of the things about student ownership is it can be designed how you like. So it depends on where the founder is in the process. So let's say you have a founder that's exiting because they want to retire, and they really want to walk away altogether, but they want to leave it in good hands. They might help to select the stewards. They're gonna move the organization forward and ensure that their leadership team is ready to take it on, and then they're brought out of their ownership and they walk away. But you also might have a founder that they might be ready to retire and they don't want to do the day to day, but they don't mind the idea of still being involved in some way as sort of a benevolent overseer. So they might become one of the stewards. They might actually decide to be the only steward. They can decide how they want to form that, but they may still want a hand in ensuring that the vision of the company moves forward, so oversight of the purpose. Um, but that doesn't necessarily mean that they're going to get the profits. As an owner because they're, they're disconnecting those two things. So it really depends. Some owners decide to stay, have hold some ownership or to just have a stewardship role. And then also, it's important to understand that these aren't only solutions for founders that are retiring. So sometimes you have companies that are midstream in their process, organically grown company, it's a good example of a company that it wasn't a retirement of a single founder. It was a it was a Structure of the organization. So sometimes the founder is still actively involved in the business going forward, their role just changes slightly and how they think about their role might change slightly. So those are the three situations where founders can think about this steward ownership. There's a couple of triggers, right? The most common for us in terms of our clients has to do with founders near retirement, finding themselves in that space between thinking about. legacy. But we also speak to a lot of younger entrepreneurs, actually, that are thinking about taking capital for the first time. And that's a really important juncture. So you can imagine that as an entrepreneur, you've started this business, you have your hands firmly on the steering wheel, you are in control. But as an investor comes in, there's a fear often that even a well-intentioned, well in lineed investor might pull them off course because they might be driven by Maximizing profits. So that juncture of taking capital can be a really important place for people to think about ownership. And then I'd say sort of the third place is more of the organically grown company example, where they're a company that had been around for 40 years, had done very well over time, had had multiple ownership structures, but realized that where they were at that point in time, the ownership structure actually wasn't serving them. They were in an employee stock ownership plan. That was causing the organization to to funnel basically the majority of its profits into buying back the stock of retiring staff as they leave, which is how an employee stock option plan works, and they felt really constrained by that, and they were really concerned that over time that their obligations would outstrip their availability of capital. And so they were looking for an option that was going to help them change that dynamic while still enabling them to involve all of. Stakeholders in their organization, they were a very multi and are a very multi stakeholder organization. They wanted to retain that opportunity to have governance participation by a broad group of stakeholders, and they wanted to change the incentives for their current employees. They didn't want to have them. In a retirement plan, which is what an employee stock option plan is, they wanted to find a way to share benefits in real time, share profits in real time. Finally, they just really wanted to be sure that that the company would never be sold. And with the employee stock ownership plan, the trustees of the plan have a fiduciary duty to maximize the return to their beneficiaries, which are the employees. So if I If an offer comes in, that is good from a financial standpoint for the employees, the trustee's job is to say, yes, we will sell the company, and that made them very nervous. They thought that independence was really part of their competitive advantage. And that's how they made it to trust ownership. That's how they landed there because it solved all their problems in one fell swoop. So to make steward ownership work, what does a company needs to think about? If a founder is starting to think about it, like, hm I think I might wanna do I I I might wanna go through this process. I'm assuming this founder has already decided it's what they wanna do. They're gonna need a transition team for sure. So they're going to need their trusted advisors all on board. Almost every business owner has a a a legal person, an attorney that they've worked with probably for years that they trust, a CPA that they trust. Maybe a financial advisor that they trust, people that they go to that understand what the business owners' personal needs are as well as their business needs. You you have to kind of start an early on ramp into those conversations to help them understand what you're trying to achieve and why you're trying to achieve this type of transition to get them ready to help you. You need to find your community of other steward ownership, either companies or organizations. are helping move this kind of work forward so that they can help you on that process. You mentioned staff, and you're absolutely right. So, and there's kind of two levels to that, right? So if you're a larger organization, you know, you're probably gonna want to start with your leadership team. In fact, I wouldn't even say probably. You absolutely need to make sure you get these folks on board before you make a final decision. And we really believe in a facilitated process where. Stakeholders come together to co-create that future state. So it's really important that you get them on board because they will have a different type of purview going forward potentially. They might not have the same structure they've had in the past. So you have to make sure they're on board with you. Having everybody from top to bottom feel great about the transition is really important. So I'll give you an example, we're working with another grocery retailer, a small business owner here in Oregon, who has just one grocery store, transition to trust ownership. And he, before he finalized for himself, even though he's the only really, really the only person who needs to make a decision about this, he would not say for sure he was moving forward until he had shared it with all of his staff. He has 110. members gotten their feedback and tried to incorporate their feedback into as much of the trust design as possible. They're using a trust for their form. And that is really making all the difference because instead of the staff being like, maybe it's a takeaway, they could have had an employee stock ownership plan, they could have had a cooperative, maybe where they'd have more, more of a voice, potentially in there that you could, you could think that, right? They instead see this is something that they're part of and that they're very excited about. So that's important for the process to go smoothly during the transition as well as after the transition. And it's also important for your company's stability and resiliency over time, because this can be part of your competitive advantage. It can be what makes you stronger and different than your competitors. So you want to really build that strength and early on. What about investors? Do you need investors? It depends. So it depends on what the structure of the ownership is and whether or not the founder, how the founder is going to handle the transition. So in the majority of cases, the founder is is getting bought out in some manner. It could be self-financing though. So in the, in the conversation or in the example I just used around this grocery retailer, he's doing a note. He's doing part of the the buyout in a note that you know that he's structured over, I think 5 years with a very reasonable interest rate, and then he's doing part of it as preferred non-voting equity. We will transition his common stock, a portion of his common stock into non-voting equity so he'll have a dividend stream that will come over time, and he will have a note that will get paid off over a number of years, and he can afford to do that. He's in the position to be able to do that. Other companies or other founders, I should say, don't have the luxury necessarily to buy themselves out, so to speak, and so they need other investors to come in. Organically grown company is a great example of that. They needed to raise quite a bit of money actually to buy out their employee stock ownership plan, as well as their long term other owners who had been farmers and staff members and a number of different people. And so they had quite a heavy lift to do. They spent about a A year, a little over a year, raising money, but they did, they raised a significant amount of money. And again, they did this with non-voting preferred equity. And part of the reason, I'd say there's kind of two types of investors that were interested in this. One type of investor was interested in this because of their investment philosophy around organic and sustainable agriculture and really wanting to ensure that organically grown company made it another 40 years, and they thought that was their, you know, what they got. Excited for what they got excited about. And then there was another subset of investors that just thought this whole trust ownership thing was really cool, and they're very excited about this idea of alternative ownership as a way of sort of shifting the economy, making capitalism, you know, less focused on profit extraction and more on sort of, you know, the benefit of rising up and, and elevating the benefit of all of all stakeholders. And so there were different investors that come, that came in. But all had to have a particular perspective around their expectations. So knowing that they weren't going to benefit from the underlying assets appreciation, the way the non-voting equity is structured, you come in with a $100,000 investment, you get a dividend as long as you're invested, and when you go out, you go back out with your $100,000. There's no underlying asset of that um appreciation. And so it needed to be a kind of investor that was happy. Enough to take a very solid, predictable return, and that wasn't as driven by having a big upside. So, what you are saying to become an investors in this type of steward owned companies, the mindset needs to change. These are the type of investor that is really focusing on the goal, on the vision of the company. It's not profitability to goal. It's the greater good for the people and the planet. Seems like it. Is that fair to say? Yeah, no, I think that's absolutely true. And we hear all the time, you know, you hear the, the term impact investor, and that's what you think of, right? Somebody who's concerned with impact. And there, there's a spectrum of impact investors. So there are impact investors. Who are very much driven by impact as in the, you know, specific measurable impacts that they can see from their dollars that are doing some good in some areas that's very important to them. And then there's other impact investors that are impacting in areas that people are very emotionally, not emotional necessarily, but you know, very passionately attached to, but they still have expectations. of profit and return levels that are beyond what you would deem as um necessarily healthy for the the organizations that they invest in. And so we are looking for a very specific subset of those and I and I just would also add that what I'm describing in terms of the non-voting preferred equity is just one way that you can structure it. There was one interesting example we looked at recently, that was a profit flip where the investors get, I think it was 2x their investment, and until they get 2x of their investment, I should say they get like 90% of the distributable profits and 10% goes to the employees. And then after they get 2X their investment. It flips and then only 10% goes to investors and 90% goes to employees. So there's all different ways you can think about it, but it's all has to be predicated on this idea that it's not about a terminal exit. It's not about the underlying value of the company having to be sold at some point to someone else for the investors to get their return. Because I know there are about 4 models of steward ownership. Can we talk about it in more detail specifically? You're right. You've been doing your homework. I know you have. We talk about it in terms of 4 major forms. I think that this is continuing to evolve, and there are hybrids and there are other forms that will evolve. But the four major, the first is, uh, this umbrella of perpetual purpose trusts. And that's kind of the full name of the trust ownership that was adopted by organically. Grown company and one of the things that we love about perpetual purpose trust is how flexible they can be structured both from how they benefit stakeholders, how stakeholders are involved in governance. There's just a lot you can do to really make sure it aligns with your company ethos. Within Purpose Trust, there's also this subset, uh, called employee ownership trusts, which are kind of just what they found. So the purpose of an employee ownership trust is to benefit the current employees. They are. An interesting alternative to employee stock ownership plans, which, as I said, that's, you know, the dominant form of employee ownership in the US. And a lot of the requests we get from folks right now are from folks who've heard about trust ownership as an alternative way of doing employee ownership. So that's a, that's a big piece of the movement right now. So you have trust structures, and then a company could also be steward owned if it was nested under a foundation or a nonprofit. So similar to trust, in both of those two. Examples, you have an entity that holds the common stock, and so there aren't individuals holding the common stock. Now, again, I'm talking about 100% ownership solutions. You can have hybrid partial as well. So, in contrast to that, there's two other models where you do have individuals own holding stock. One of those is a cooperative. So cooperatives, as I'm sure you know, are formed to serve the needs of a particular group, like producers or wholesalers or employee. And they generally operate on this idea of one member, one vote under the sort of seven rules of cooperative membership. This is a long standing ownership form in the US and elsewhere. And more recently, there's been this movement around something called a limited cooperative association or an LCA. And it speaks a little bit more to alignment with steward ownership in that they talk about the fact that it's not intended to be sold. So one of the drawbacks of the cooperative from a Steward ownership perspective is that the members can vote to demutualize. So to break up the co op so it can be sold. And that is important to some cooperative groups who want to be able to build the wealth for their members. So, and that's perfectly wonderful. But from a steward ownership perspective, the goal is to set the foundation for, you know, sort of independence in the future, so not to buy and sell. And so either the LCA model where it speaks. Specifically to not being demutualized and sold kind of fits well under the steward ownership umbrella, or you could have a, you know, just a traditional cooperative model where you instill some method to ensure that it won't be sold. And that could look like, like a poison pill. So an example I would give you is some companies set a something in their bylaws that says, if the decision is made to demutualize and sell the organization, no single individual can Benefit financially from that. So any profits above and beyond what they need to take care of their debts, etc. their obligations would be distributed perhaps to charity. So something that, that disengages that individual profit method to vote for selling and and demutualizing. So that's cooperatives. And then the last one is called a golden share model. So essentially with golden share, you just establish different classes of stock. Different share classes, and you use those to separate out the voting and economic rights. So say for example, you could have voting shares that are assigned to stewards, and the stewards are merit-based. So it might be the CEO and maybe the CFO and some subset of people within the organization. And the shares, they can't be sold. So even though you have the voting shares, you hold it, you can't sell them, and you can't they they aren't inherited, so you don't pass them on through blood. As you would say, instead, they are passed along through merit. So say for instance, if somebody is holding the, the voting share of for golden share model company, when they leave, there's a decision made by the other stewards of who is going to hold that share. So it's kind of a ceremonial thing in a sense where you're holding the share. And then at the same time, you establish classes of economic shares that entitle the holders to some share of the future company profits. So you could imagine that maybe there'd be a circumstance where you have a founder who decides to install this golden share model and they actually give themselves founder shares that enable them to have, you know, some sort of dividend in the future so they get that economic right and the founder might actually also decide that they want some number of voting shares as well. It's a little harder to get your kind of head around about how you actually structure in a way that disengages voting and economic rights because it's a little less clear how that is it. But it's where it seems to be working well is with folks that are starting businesses, and especially, say, for instance, they are in a situation where they are taking on capital, and they say, OK, at this juncture, before we take on capital, we're going to restructure our share classes. We're going to appoint a few stewards that are going to hold on to the voting rights. And then its founder, I'm gonna, I'm going to get some economic rights. And I'm going to also have a different share class at my investment. are going to come in on that gives them economic rights, but they're not going to get voting rights. And then the final thing that you have to have to make this work is something called a golden share or a veto share, which is essentially held by maybe a nonprofit or some other person outside of the company, generally a nonprofit is, is who you would use, that is there to veto any attempt to change the purpose or to sell the company. So that's the, that's the mechanism you use. To ensure that the company won't be sold in the future and that purpose will be maintained in the future. So, as I said, you've got kind of two buckets. You have the trust and the foundations, which are where individuals don't hold common stock or don't hold shares, and then you have golden shares and cooperatives where individuals do hold on to voting rights. What do businesses need to consider in choosing the right form of steward ownership? Good question. This is our ethos, is that your ownership form and how you take in financing and how you structure governance should all align really well with these four elements, the head and the heart we call it, right? And so the head is all about your strategy, your business strategy, your financial model, your competitive advantage, the things that make you, your operation sustainable and resilient into the future. What do you need for that? And then the heart. Being your mission, your vision, your values, your operating culture, how you want to lead, and all of those things we think need to be considered as you're thinking about ownership structure. And so the process that we use basically is going through a sort of an evaluation and a, and a study of that with founders to really dig into what drives them, what is their purpose? What do they want to protect into the future? What is the service for the product that they're doing that is making the world. a better place and how do they want to lock that down as they move forward? How do they want to engage their staff? Who do they want at the table? Who do they want to have decision making ability? Who do they want to share in the profits? All of those kinds of questions we try to tease out with owners because you do have options and not every structure is relevant for every business owner. Is it possible for a business that is in their early journey, Let's say like 5 years, but they already started thinking about this. Is it possible to take the trust model or the co op model? I suppose you could. One of the things that I would want to share with your listeners and that I share with a lot of folks is that as much as I adamantly am excited and believe in steward ownership, I do caution people when they're early in their life cycle at their company in making a decision that is as permanent as Steward ownership is. So you can be very excited about this premise, and it could make perfect sense to your business at this point in time. But until you have a track record of profitability, until you have a, a, an understanding of what the future looks like, it can be very difficult to make a decision like this. That in essence, means that as a founder, you will not be able to sell your company later for what could be a very large payday. So not, not that you can't get that liquidity as a founder when you transition to stewart ownership, but there is a, there's a difference there, right? I recently did a talk with some folks at a business accelerator at Portland State University, and I was talking to them about this exact thing. You really need to pause and think about what you're going to want in the future. And do you know what you want right now? Do you know what's going to be right for you as a founder 30 years from now? Or might that change over time? I certainly feel like my own experience in the corporate world and in business ownership has changed over time. So I, I caution people to really think long and hard about that and make sure they're not moving too quickly into something that they can't easily reverse. So is there a right moment? To make this decision. I know it's probably it depends, but I'm curious, like, when is the right moment? Is it a decade? Is it, it definitely depends, right? I mean, it definitely depends. It's so hard to say, and it really, it's so much about the founders and owners, whoever that that current business owner is now just thinking through what they want. The future and whether or not they feel ready for it, because in the end, it's the decision of individuals. Oftentimes, in the situations we see, it's a smaller group of individuals. They're just making a very, a values-based judgment about what what they think the future looks like. What we try to help them think through is objectively, how does this fit with your business model? How does this fit with you in terms of how you lead and how you want to be involved. In the future, and how much you want to share that, that governance with others and how you feel about sharing potentially more broadly in terms of the profits, versus you, you being the sole sort of controller of that. There's so many things that change. So we just try to really tease things out. And I, I think for us, what we found is that often it is a conversation that can last a couple of years before. Somebody's actually ready to pull the trigger. I think part of our job is like, we're sort of kind of coaching and supporting folks that are going through that process. And then we're also helping to coach and and help support them through this process of thinking about what some would say is sort of uncharted territory. These are new ownership models. Let's say that you have outside investors, they put their investment. Let's say that the founder has a change of heart and basically saying, I want my purpose, my heart to be the driving force for the future. I'm not looking for this hyper growth anymore. Does that mean that the business or the company needs to start thinking how they can buy back the ownership from the investor? Or is that even possible? It's a good question. And, and I, I would say we actually have, we have been through a situation like this. It wasn't venture capital, it was private equity, but, you know, same sort of situation where we had our client who had been originally an owner, and then over time, the private equity had taken a majority position. And in essence, what he was trying to do is do a sort of a leveraged buyout, try to figure out a way to actually buy out the, the majority owners because he was nervous about what was going to happen when the company was sold, because the private equity timeline had run its path, right? And, and they were getting ready to sell the company. And so he worked with us, asked us to help him try to see if there was a way for us to line up investors and to create a steward ownership structure that would enable him to buy back the company and put it into a trust. And it was an incredibly exciting and interesting journey that we went on. But I would have to say it didn't have a happy ending in that, it was very Very difficult for the private equity group to equate a steward ownership offer with the other offers they were getting. More specifically, they were getting offers from other traditional buyers, traditional sort of mergers and acquisition type of activity, versus what we were trying to do, which was trying to bring together a group of investors to create enough capital to buy out their ownership. The private equity firm said, well, you know, absolutely, we're going to go over here with these guys because we know these guys and we've done business with them before, and we've sold companies to them before, and they didn't necessarily put value on the things that we were trying to position as differentiators, which was that idea of trust ownership and longevity and independence and sharing with stakeholders. That wasn't important to them. I hope over time that we will see examples play out where other PE or VC firms will look at that and say, oh, well, we've seen this happen before and we see how that can work. You were talking about control and then advising the the early startup or people that are interested and are still early in their journey to think about are they ready? to give up their ownership. As you were talking about that, the thought process that I have in the back of my mind is that, OK, well, if you have venture capitalists or private equity, and then you're already giving up like 50% of your ownership, what difference does it make? You're still giving up your ownership to a group of people. Why not giving it up to a steward? Ownership. Does that make sense? What I'm trying to say? Like, you're giving up ownership anyway. Let me restate your question. So are you saying, is it really different to give up control to private equity, 51% versus giving it up from a steward ownership perspective? OK, so the difference is, is that with steward ownership, you design you as the founder, giving away that ownership control, you design what The governance structure will look like and what the purpose is that's being held. Let me use the example of this grocer that we're working with right now. He might have said, Well, it doesn't really make a difference whether or not I sell to the trust or I sell to somebody else, because either way, I'm not going to have control. But actually, in the situation he created, he created a steward, a stewardship council that will oversee the trust that he is a member of. So he has Decided to maintain some form of control, and the trust agreement states specifically that the business can't be sold. So he knows that if it was owned by a private equity company, it would most certainly be sold in the future. That's the next step in the private equity cycle. So he can control that outcome. And the trust also codifies what the purpose is. So there's a statement of of what the trust. I intended to do. So the trust's goal is to shepherd the assets of the company to make sure that they're being used for the purpose. So the purpose statement is codified in the trust agreement, and then you generally have some list of objectives or and or metrics that are measured to be sure that you're moving in that direction. So the founder has said, this is what good looks like. This is what the future should look like. They design all of that. I'm gonna put all the pieces in place to lock it down and let it fly out into the future, like a little spaceship. You can't do that with private equity. You can, you can have agreements and discussions and conversations about what good looks like, but in the end, you are not in control. And so the private equity group can make whatever decisions make sense to them. And it's not that the private equity folks are bad people by any stretch of the imaginations, but they are beholden to their, their investors. Yeah, they're investors. They're limited. Partners have an expectation of a certain return, and they don't just sit back and say, well, it's OK, we actually think what they're doing is really cool, we'll take the lower return. That's not the private equity model or the venture capital model. And so there's, that's just the system and how it works. It's not really about the people behind it. It's not good or bad. And so that's really where the difference is, is there are many, I'd say the majority of owners who when they're ready to sell the business, they're just ready to be done. And what happens in the future isn't as important to them. Because they've run their, they've run their course, and they're happy with what they've done. And that's their legacy to them is what happened in the past. These founders, the difference is they're very concerned about the future, and they want to control in some way that future. As I'm listening about the stewart ownership, it seems that as a founder, the return of your investment, your sweat equity may not be as big as if you choose the traditional way. I would say that that's not necessarily the case. I mean, it could be that there's trade-offs in terms of what you're giving away in order to transition into trust ownership, but it doesn't necessarily mean that you're going to get less. It's all about the value that of your company, right? How, how strong is your company? What is the profitability of your company? What? Will people be willing to invest in, right? So if you're bringing in investors, they're going to pay what they think is reasonable based on the, um, you know, the turnover, the profit, the, all of the metrics of a company. And so it's possible that you may get an equal part. What you won't get is that blue sky that investors will sometimes give. Well, they'll look at a company and they'll say, wow, we know the levers we can. Who to increase profitability, we can consolidate operations, we can reduce staff, we can lower prices that we pay to our vendors, whatever those levers are, and they see that and they're paying, knowing that they're gonna get that upside. What a lot of these vendors would hope for is that those things wouldn't necessarily change into the future. So there can be trade-offs, but there's also trade-offs in that ability to get that. Legacy that these folks want, and that ability to look in the mirror at the end of the day, when it's all said and done and say, I did right by the future of this company, and I did right by the people that helped to build it, and I shared the value with them. And that's maybe harder to put a dollar value on it. One of the things that you keep bringing up in this whole conversation is about profitability. A lot of startup that receive money, even up to their exit point, let's say IPO, that's one of the exit strategy or M&A, doesn't mean that they have profitability. Let's talk about the unicorn, unicorn of the world, like Uber or WeWork that was planning to have IPO as their exit strategy. They were not profitable. But it seems if you are choosing this way, or you are thinking about this type of models, steward ownership model, you really need to think long term and make sure. That there is a track record of profitability. Is that fair to say, Sarah? Absolutely. First of all, steward ownership businesses are not nonprofits. They are profitable businesses. They just have a different focus potentially on how they view profits and how a profit should be shared, but they are not nonprofits. The second thing I would say is that steward ownership is not a solution for a distressed business. It's not a solution for a business that It's not yet profitable. Because, as I said earlier, you have to find a way to transition the owners out of ownership, which means buying out the owners. And so there has to be a price paid for that, right? And if you are not profitable yet, it's going to be very difficult to find investors who are willing to give you money if you're not profitable. And so, again, when we get to those, the examples that, you know, Not specific examples, but when I talked about those kinds of entrepreneurs that are, or maybe early stage businesses where they are in a situation where they really need to raise capital, and they're coming to us and saying, I really love what you're talking about, and I love your your models, but we need capital now, and we don't necessarily have the fundamentals of our business in a position where we can raise money from people that aren't going to speculate, that aren't going to. Be looking at this as an opportunity to to change the trajectory of the business to increase profitability in a single-minded way. And so that can be a real challenge for folks, because you do have to have a strong business model. You have to understand what your core value is and how you deliver that in the marketplace and why it's special to your customers, and you have to be able to Show a track record of profitability and being able to pay off your obligations, whatever they may be, in order to convince an investor to invest in your company. So steward ownership isn't right for people because of maybe their philosophy. Perhaps there's, there's people that philosophically opposed to it, and there's just also those that just aren't in a financial position to be able to explore this alternative because they just don't have the foundation, the financial foundation. It makes me wonder though, if this steward ownership can be applied to a technology company, because majority of technology company, they require upfront capital. It's a very challenging field or industry, I should say, to tackle the ownership question, I think, for sure, maybe it's a golden share model early on for folks. Where they have some sort of ability to lock down the long term independence of a company through some sort of mechanism like a golden share, while still providing the return that their investors are looking for. But it's a real challenge because as you said, so often it takes years and years and years to get to profitability, and the upside potential is huge, but then there are all the people that never make it to that, right? There's all the ones. That never turn into that unicorn, but instead fall to the wayside. And so how do you convince investors to look at their investment structure differently when there's so many options for them to invest elsewhere? Maybe there would be like impact investor later on that just like specifically focus on this goal, they are thinking in the Long term and then they just structuring their fund in a different way where the focus is not the return in a short term. Maybe they're expecting a return in 20 years, maybe expecting return in 30 years. You got to take a specific type of investor like you said, to really change the ecosystem. Yeah, there are evergreen funds out there that have more like a 30 year timeline and a 10 year timeline and that might be well suited for this. It's an interesting thing that's happening now is there's a group of folks that are have started this movement that they call Exit to Community, and they're definitely sort of enmeshed in the tech field. And their thought isn't so much around locking down, you know, independence and things early on. It's just being thoughtful early on about how you want to get to that later. And so it doesn't necessarily precede the idea, or I should say, preclude the idea of investment early on. I think it's more about how do you think through who creates the value in your community and your community might be your users, if your tax platform, for instance. And how do you get to the point where over time, the user, you know, however the users are are paying to be part of the system, whatever fees they're paying, are building maybe ownership equity for those individual users so that over time you sort of flip the model where you're buying out whatever the investors are, and it's the community that owns it in the end. So it's sort of a Different way, sort of a longer term sort of viewpoint. And there isn't any specific kind of solution that somebody's pointed to and said, this is the solution, but it's more just a group of entrepreneurs who are all starting out and saying, we know, we have an idea of what we think we want the future to look like, and we're not sure how we want to get there, but we want to kind of come together around this idea and see if we can help find the solutions that will work for us down the line. So, um, I do think tech is a, is a unique industry to consider. I think there's gotta be a movement out there is about long term profit instead of short term gain. I, I just feel like there's got to be a mindset change over there. I'm just running a series right now about business for good, which is I was talking to female founders in the B Corp communities, and then they all bootstrap. I know there is a concept about public benefit corporation. Can you explain the difference, the key differences between Stewart ownership Company versus the public benefit corporation? Absolutely. So public benefit corporations, it's really relatively new incorporating structure and I think it's now 35 states that allow you to incorporate in that manner. And what it does is it allows that company to include. Specific public benefits in their incorporation documents as legally defined goals in addition to profitability. So in doing that, you create latitude for your directors to pursue social goals related to, say, the environment or their workers or their community without fear of being sued by their shareholders. And so for this reason, many social driven social entrepreneurs from the very beginning, like from the onset, choose to incorporate as PPCs, which is great. But sort of the differences between PDCs and steward ownership is that in PDCs, the shareholders typically retain control of both governance and economic rights. So in addition, the ownership can be sold and the commitment to a PBC can be undone by a majority vote of the sharehold. So for example, after their IPO Etsy, who was very famous for becoming a B Corp, they gave up their B Corp status under pressure from their activist investors. They specifically said that being a public company and a PBC are incompatible. And so, in contrast to that, steward ownership companies, you know, what we've talked about, they decouple governance and economic rights. So the commitment to purpose and self-governance and independence, it can't be undone by shareholders, and the company itself can't be sold to an outside party. So that's the main difference. And I will tell you that in my own personal situation, going from New Seasons Market, which was a B Corp certified company, I was very concerned that at a certain point, ownership would change. And that would be walked away from. And I, I always had a bit of a fear around because that was part of who I was. That was the portion of the business I, I led was the B Corp side of the business, right? I felt like maybe I didn't have a future there because of that, that wasn't locked down. Now, I'm happy to say that, let's see, it's been 3 years since I'm gone and they're still very committed to their B Corp status and, and hopefully, you know, knock on wood, that continues in the Future, they continue to be a good actor in that way. But there's no guarantee about that. And that's what I really loved about the idea of student ownership is it takes off the table the idea that you can just walk away. Now, people always ask us, now, how can that be? How can that be that absolutely there's no, no way the company can be ever be sold if what happens if the company goes bankrupt? And so I, I always want to acknowledge that you do have to have something stated in your trust agreement that talks about. If you use a trust that talks about what happens if the company is insolvent, or if perhaps there might be a situation where the company is struggling and it needs something else to become stronger, and maybe a merger would actually further benefit for more so than them operating independently. So you want to write in elements into your trust agreement that, that logically help you think through what could happen in the future and how to protect against those. I know you are focusing on the US businesses right now, helping US businesses. What I'm curious about, can the Stewart ownership model be implemented anywhere in the world? Well, I mean, honestly, steward ownership forms have actually been around for over a century in Europe. I mean, that's where our influence comes from. It's predominantly been in the UK and Germany. In 2015, there was actually a nonprofit called Purpose Economy that was founded in Germany, and they were founded to study ownership forms that enable independence and the ability to be purpose-driven, and they were the ones that coined the term stewart ownership. It didn't start with the philosophy of student ownership. It started with people saying, look at these companies and how they've operated for 100 years with these really unique ownership models. What's the similarity between these models and how can we Bring them together in a way that people can emulate this, and we can spread this kind of ownership. And they realized that, you know, they, they were making great headway in Germany and in the UK, but they realized, OK, we take on capitalism, we should get to the US. So they brought a foundation, they started an arm of their foundation in the US and now they're in Latin America as well. I know you touch on the step to become a steward ownership. Can you summarize it in 123? So one, you need your transition team, so your lawyer, your CPA, your advisors, you need their help, so get them first. And then second is really sitting down and doing a formal assessment of your financial viability. That is an incredibly important step. So like I said, not every company is a good fit for steward ownership from a financial perspective. So they really need to have. Robust projections in place to understand, you know, what is your cash flow and what is your ability to service debt and equity that you might take on to finance the transition. We would also recommend they do really extensive modeling and contingency planning to understand outcomes under best and worst case scenarios, right? So just a really solid financial plan. And then third, you need to design your structure, your ownership structure and your governance structure. So, you know, in a conventional business transition, the focus is on who assumes ownership with steward ownership, the focus shifts to. How you structure the ownership and governance after the transition, right? So looking forward, deciding which legal entity form is right for you, how you want to identify your purpose or codify your purpose, how you want to divide up rights, who gets voting rights, who gets economic rights, etc. And then the last step to create just like a really good roadmap to implement your plan. I think the roadmap is really critical to ensure you stay on track and navigate your transition. And so that you can have a, a project management template of some kind for your internal team and your external advisors all to be keying into to make sure you're, you're moving forward with the right level of input and oversight. I mean, whether you're thinking about selling all a part of your business or transferring it to a family member or an employee or or transitioning to a steward ownership, it's, it's always important to give yourself plenty of runway to make really well informed decisions. Because, I mean, after all, How and to whom you transition your business to is potentially the most important decision you make for your personal financial situation and certainly for the legacy you leave behind. So you need to give it time and you need to give it attention. So how long is a reasonable runway, Sarah? Because there's the time you spend visioning about what you want. There's the time you spend with viability questions around if it's financially viable, there's time. You spend with the nuts and bolts of trying to get through the legal process and potentially the investment and financing process. So, you know, we tell, when we start engagements with people, we usually say, you know, don't, you shouldn't be surprised if this takes a couple of years. Is there anything else that you want to share with my audience before we wrap up? Yeah, I mean, I think we've spent most of the time talking about sort of the benefits to the owners in terms of sort of what they can do. What they can gain in terms of legacy, how they can stay involved, how they can set the future. I think the other thing that I just, that's very different about steward ownership is this idea of rewarding value that comes from all stakeholders and this idea of ownership not being the sole reason why a person has the rights to profits. And just this, this different idea, and it's been such an interesting process for me to have these long conversations with Founders who are getting to a point in their career where they're starting to really think about the value that they're taking out of the organization, their draws, whatever that might look like, and what they're sharing with the rest of the employees. And, you know, at what point in time do you say, I've taken enough, or maybe I need to take class. Those are really, really hard conversations to have. But to me, I think it's really interesting to open up this dialogue around. Is the way that we think about business ownership really the right way to enable the vitality and the health of everybody in our sort of ecosystem? And this idea of thinking differently about how you share those economic profits can be really exciting to think about. So if you take a founder who is leading the company, and perhaps he's starting an employee ownership trust, and he's taken X amount of dollars out of the company every year, we're going to have to have some amount of dollars set aside to pay him back. As he transitions out. But once you've gotten past that, then all of those dollars that were going out is the owners' profit can now potentially either be invested back into the company or shared in a more vibrant or a larger way with their staff. And that to me is really exciting, just this idea that a different set of players within. A company can get value or be paid for the value they bring in a different way. So it's more regenerative instead of extractive like you keep mentioning, right? That's a really good way of saying it. I like that. So, Sarah, this has been a pleasure. I learned a ton, and I'm sure my audience learned a ton. Now, if they want to continue this conversation with you, where Can my audience find you? Well, it's easy to find us on the web. Our website is alternative ownership.com, and I am happy to speak with folks directly. Um, you can reach me at Sarah with an H at alternative ownership.com. Christina, thank you. This is my first podcast ever and you made it an absolute joy. And it was a great conversation and I hope others enjoy it as well. Thank you so much. It's a really a pleasure to have you here. Thanks again. And that's brings us to the end of another show. Thank you so much for listening to another episode of her CU journey, the business finance podcast for women entrepreneurs. If you want to create a proactive financial plan and process, For your business, so you are ready to weather the financial storm over the next few months. Let's chat and see what's possible for you. Booking a time to speak with me at christinahaley.com/le's chat.