The Worker Co-Op Solution

Hello, everyone. Welcome to the 21 Hats podcast. I'm your host, Lauren Feldman. In this week's bonus episode, Cameron Madill takes us on his succession journey, which began years ago when he started having conversations with older business owners, many of whom seemed to feel trapped. They'd had a lot of success. They were proud of the business they'd built, but they weren't sure what to do with it or how to leave it. None of the usual options seemed terribly appealing. Hoping to write a different ending, Medill, now in his 40s, started looking for better options much earlier than most owners, and the one he landed on was an unusual choice, a worker cooperative. Now there are aspects of this model that are likely to give some owners pause. For one, a co op probably isn't going to produce the biggest payday for a selling owner. And if the owner wants to stick around as CEO, he or she will have to report to a board, and that board can challenge any and all of the owner's decisions. But Madi, as he explains in a conversation we recorded late last year before he stepped down from his role as CEO, decided to sell to his employees anyway. Not only is he glad he did, he thinks co-ops are an option far more owners, especially those struggling to find a buyer, should consider. Even in good times, owning and running a business can be a lonely pursuit. Our hope is that these 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 Chie magazine named the best newsletter for business owners and which you can subscribe to for free at 21 hats.com, where you can also find transcripts of our podcast episodes and lots of other articles and interviews. Joining me on this episode are Sean Bussey of Kinesis and Cameron Madill of Pixel Smoke. The episode is titled The Worker Co op Solution. Welcome, Sean and Cameron. It's great to have you both here. Cameron, as, as Sean may have told you, we've been on something of a journey the last year or two, looking at different ownership models and succession plans, which is why we were really eager to speak with you. First, tell us a little bit about Pixelspoke. How did you get started? What do you guys do? Uh, yeah, well, first of all, thank you for having me. Pixel Spoke is uh basically a social impact driven website firm that focuses on building websites for credit unions. So we have a very kind of niche focus there. And that's what we do. It's pretty short and sweet. Why credit unions? Uh, well, I mean, of course, there's sort of like the, uh, you know, the polished answer, and then there's the opportunistic answer, and there's there's some truth to both of them. We'll take both. The opportunistic one is we were kind of a business in search of a business model. I think we were, you know, a moderately successful, but relatively undifferentiated business. And that whole kind of like, you know, jack of all trades, you know, master of none thing very much applied to us. And I think I kind of just got, you know, tired of of saying, you know, we've got such great people, kind of a version of like, we try harder, and the longer I was in business, I just felt like this is not a good strategy. Um, it's not cute anymore to to be that kind of like trying to be, you know, all things to too many people. Um. And so I was really, uh, you know, struck by something uh uh kind of like a, I say this lovingly, an old crusty agency owner told me, which was that, you know, if you're not differentiated, if you're not focusing on a niche, you're really not adding value, um, you're just kind of like lying to yourself, and that when you really create a focus on some kind of client type, then you can really, you know, 80% of the work will be the same, but that 20% that comes from that deep expertise in this niche is what's going to allow you to really add a lot of value, and it might seem a little less exciting at first, but that's really how you're going to make a difference in the world, versus just by kind of like you know having every client be new and convincing yourself, because you're teaching yourself about that client that you're really adding value when you're doing that, really, what should be basic research. So that was kind of the Maybe the the background, and then, you know, from the, so I was looking for some kind of niche or some kind of focus that I felt like could really be a stronger, more stable, uh, defensible business model, kind of from the, you know, for like the head centered stuff. From a heart-centered focus, we had stumbled on having a few credit union clients from uh me being on the board of a credit union back in the early 2010s. They had ended up turning into a client a couple years after I left the board, we picked up a few more and just realizing like they're really just these incredible unsung heroes. In the world of finance, which is a world that mostly gets a bad rap, but also is like critically important. Are there enough credit unions to make it work for you? Yeah, there are. Um, we have, there's about 5000 credit unions. There are still, you know, credit unions where there's literally like 1 or 2 employees where they know they are sort of like super small businesses. So certainly not all of them are prospective clients, but you know, I'm sure at least 500 to 1000 of them are, and we only take on 4 to 6 new clients a year, sometimes 3 to 6, um, and I think our total client roster is like 30, it's in the low mid-30s, I guess. So yeah, I think that that's plenty of space for us. It's not like we have to be the big dog in this industry where we, you know, lock up all the credit unions. Are there other agencies that specialize in credit unions? Do you have competition doing something similar? Yeah, yeah, we definitely have competition and you know, with 5000 credit unions like they've all got a website from somewhere and there's everything from, you know, firms that specialize in kind of stamping out websites and literally do hundreds of redesigns a year to, you know, firms that that do more kind of like in the tens or dozens. I do think we might be one of like the single lowest volume shops in the entire industry, which I think is a good place to be, because I think there are a few that do similar of complexity and size uh websites to us, but they are often trying to take on much higher volume than we are and we're really kind of Committed to this idea of sustainable growth, um, a version of, if you heard, you know, Jim Collins story of the 20 mile march, which I think Sean hates, but you know, whatever, he'll get over it. I, I loved I loved it and now I'm questioning it. How about that? Well, you know what this podcast is about me we love to hear, we love to hear it, but it's, it's a version of like don't, you know, like. Basically, just sort of just keep keep making consistent progress and don't get greedy when things get easy and don't get complacent when things get hard. So we really have landed on this like we try to target 10% growth a year. That's not insubstantial. No, it's not, but we try to always hit that. That's the thing, right? And we also don't say like, Oh, we can get 20 or 30 this year. We just say like, nope, time to slow things down and focus on, you know, client delivery. And internal things if sales have gotten easier in this moment, or if things have gotten really hard, what do we need to do to make sure we still make that 20 mile march? Can you give us a sense of how big the company is? Yeah, so we have, let's see, we have 17 people and we'll do probably a little bit over 2.5 million in revenue this year. Will you hit the 10% growth that you were trying to achieve? Yeah, um, yes. What are the headwinds in the business these days? Let's see. So, so industry-wide, the credit union industry, the financial services industry, and you guys probably, you know, sure everyone listening knows this. It used to be that deposits, you just couldn't do anything to get any kind of return on your deposits. So you could be like, hey, I've got a quarter of a million dollars, I'd like to put it, you know, in your bank or credit union. They would say, Great, we will pay you 0.001%. Um, and that has totally shifted with inflation. So right now, credit unions just like community banks, just like megabanks are just, you know, absolutely in a battle. To get more deposits and so kind of the whole rules of the game are changing. I also think. You know, it's a version of the 20 mile march, money just flooded into digital during COVID, right? I mean, it's pretty obvious that you can't even have your branches open, like, where do you invest your money as a credit union? You invest it in your website, and digital marketing, and digital banking, um, etc. And so I think there's been a bit of kind of like that was like this big tide coming in and now it's like the water is receding. We're still seeing a lot of interest, but I just think from a sales standpoint, the demand honestly got pretty overwhelming for a couple of years, and now we're adjusting to kind of being out there and really having to um strengthen our own kind of personal marketing and sales muscles in a way we haven't had to since probably 2019. In terms of your marketing strategies and kind of getting in front of customers, where are you at today and how has that changed? The biggest thing that's changed is we are actively seeking prospects, you know, with only 3 to 6 new clients a year, actually, I should say 3 to 6 new redesigns a year. So if we get 2 or 3 existing clients to build redesigns, we get a couple really top-notch referrals from referral partners like we might have literally 0% capacity and that was the case, you know, we had a point in 2021. where we had to tell people, we're really sorry. We literally cannot work with you, even if you're willing to wait 12 months, because we just don't know when we'll have capacity. I've never had to deal with that before. And it sounds like kind of a fun problem to have, but it really kind of sucked, right? Because we had people coming to us who were referred by a client or a partner, and they were kind of pissed. You expect that someone has a going concern of a business, they're going to at least, you know, they're going to be interested in the idea of working with you. Cameron, what stopped you from hiring people or doing whatever you would have had to do to be able to take on those clients? It's that 20 mile march, right? It's like, hey, we're we're going to hit our growth target, we're going to hit our profitability target. And so we don't, we don't want to overgrow. Um, and you have a degree of, of, you know, breakdown that results in problems 123 years in the future because we got a little too greedy. Yeah, I mean, I'm curious, the firms that really took on that work in the in the heyday times, I'm guessing they're probably laying people off right now. Yeah, I mean I don't know what's going on inside some of our competitors that we pay reasonable attention to, but it's clear that Uh, and we're not immune from this by any stretch, but that that some of them have had some real pains from, uh, just taking on more than they could handle. And yeah, I don't know if that's resulted in layoffs or maybe it's just been harder to retain people in general. And so there's kind of churn happening. Um, but back to the marketing question, I just want to say, Captain Obvious, like, we're going back to conferences. We've done a lot of that over the last year and a half. That's really been beneficial for us. And then we're very much like a purpose and impact driven company. Um, I always love that, you know, notion that, that, you know, profit is not the purpose of business any more than he is the purpose of life, but it is a necessary precondition to survival, right? So, you know, we obviously very much have that like need to be successful financially to do anything else, but purpose matters a lot to us. And you know, as a certified B Corp, I think one of the Shadow sides of that and, and having so much business opportunity coming our way was I think our marketing got a little too focused on impact. It's one of the things that differentiates us from our competitors. But at the end of the day, we need to be like the credit union marketer's best friend, not the, you know, chief impact officer's best friend. We'd like to do both, and we want to strike that balance, but I think maybe we went a little bit too far on the impact side. And so we've been trying to really focus on generating high quality content, and presentations and podcasts and everything else that You know, is at least, you know, 50% going to be super high value, practical, applicable content for a credit union marketer, so that that natural linkage is made when you start thinking about a website back to Pixel. So when did you start thinking about your ownership model? What triggered that? I mean, I started thinking about it relatively early in my career when I had started getting up and uh you know, getting into some marketing agency groups, and I started meeting different marketing agency owners. And it was one of those like, um, I don't know, I don't really watch movies very much, but you know, like one of those movies where it's like you're in the multiverse or whatever, and it was kind of like, here, here's all these folks, you know, men and women in there I'm I'm in my, you know, early to mid-30s and you know, men and women in their 50s and 60s who own agencies and kind of being like, do I want to be this person? What would that be like? Do I want to be that person? And I started just seeing a lot of folks who What they would say was that they were kind of trapped. Um, they had an agency that supported a good lifestyle. Maybe they had their name, you know, in the company, and there's kind of ego and prestige in being an owner, CEO of your own company. But a lot of them it just felt like kind of like the, you know, the heart and soul, um, and passion, you know, that they had for their work had left the building long ago, and they were just kind of hanging on for, you know, lack of a better option. So I, I think I started just sort of thinking about myself in my 50s. I love this, this analogy from an event I was at last week, of like, have you guys ever been in a party, you know, you're having a good time. It's loud, there's drinking, it's fun. And then someone turns the lights on, and you look around, it's just like, holy crap. Like someone's like throwing up in the corner and someone's like sleeping on the couch, and there's just garbage everywhere. So like the whole idea is like we all exit our business at some point, and the only question is like, do do we do it willingly feet first, or do we get tossed out head first. And so just thinking about like, you know, beginning with the end in mind, like, what's that going to look like for me at Pixelspoke. And then I started looking at folks who sold their companies and all the various different configurations that I can take and like nothing really resonated for me. So I just felt like I knew the end was coming. I don't, I didn't want to do this until I was in my 60s. And so it's like, what's the way I can do this that feels like it would be an integrity with all the stakeholders, you know, including my own, you know, my own personal needs, but also our clients, our employees, uh, the people who are, you know, part of our impact work. And so that was really kind of what I was starting to look for. In 2016, 2017 when I stumbled across the worker co op. And when you say you were looking for it, what was this a kind of an organized search where you were deliberately seeking out people to talk to about their experiences, or was it more just when it occurred to you, you gave it some thought? Uh, I mean, I can say like with clarity, it was absolutely not an organized search, yeah. Uh, it was just like kind of an intuitive thing, you know, there wasn't really a hurry either, right? I mean, I liked what I did. I love our team. I really love our clients. I think what it was is that I'd seen too many owners who got to a point of just like hating their companies or being desperate. And then they just kind of did what desperate people do. They just kind of found the, the first possible escape route they could. And so I just didn't want that to happen. As you were exploring these options, what was the first thing that you started to think might be the right approach for you? I wrote this all down somewhere, but it's kind of common sense, right? It's like you can, you know, you can find like a some kind of merger to a friendly, you've got these big conglomerates that, you know, roll up marketing agencies. Um, you can try to be a strategic acquisition, you know, that probably would have been the best way for for me to maximize. You know, the sale price to in our space, like, you know, selling to like an online banking company or some kind of big uh FinTech. There's also the option to kind of sell to a few key internal people, the kind of golden handcuffs thing. And and just like none of those resonated with me. None of them felt right. None of them felt like they had a really strong chance of, of really preserving like our purpose and culture and values and the value that we deliver to our clients. Um, and so when I stumbled across the worker co op model, it just, it just felt right in every way. Then we did Laura do a very, very detailed kind of like discovery process, but just every step along the way, it just sort of confirmed, yeah, this will have challenges like anything, but, but this is the right path for us. I imagine you stumbled onto ESOPs at some point. Um, did you look into that? And if so, what was your assessment there? Yeah, you know what's funny is I heard a lot about them, and I've, you know, we've been openook management since 2007 or something like that, maybe 2008. That was a fun time to start that, as you can imagine. Here are the numbers. They're terrible. Yeah, uh, you know, in a lot of that world, right, you know, you go back to Jack Stack and the great game of Business, and Corey Rosen, who does a lot of stuff at the National Center for Employee Ownership. Like, there's a lot of amazing work in that space, and a lot of it, it's like, hey, you do open book management, you want to go to the next level, like you have to have employee ownership, and a lot of it was connected to ESOP. But you know, my, my basic understanding then and now is that that ESOP is for much bigger companies that you have to be kind of $5 million in revenue and, and you know, I've heard numbers like a million a year and uh my sense is it's meant for bigger companies. It also didn't really speak to me in that. It's really about maximizing the long-term dollar value of the company for the employees, and it doesn't have what you know in the B Corp space that we talk about is mission lock. It doesn't really say very much about the purpose. And so I actually, part of the way we designed it is like We have some poison pills in there that if, if the worker owners ever want to sell the company, they don't actually get that much money. Whereas like in ESO, my understanding is they're legally required if they have a sale opportunity to maximize whatever is the biggest financial return for the workers. So I wanted something that would balance multiple stakeholders, not just dollars into the pockets of the workers. You're ahead of the curve on that, I think. I've talked to a lot of business owners who didn't fully realize that until after they'd done the ESOP. Well, they probably have bigger companies too, in fairness, right? So maybe I would have gone down that path. I don't know, but yeah, I just did feel like it was right for us. I think it's a really wonderful thing, but I think ultimately it's kind of like a retirement plan on steroids, and I think I am really attracted to Um, kind of the elements of like, like teaching and practicing and living democratic governments, not democratic management, not that there's anything wrong with that for people who do it, but that doesn't actually really appeal to me or us. One of our co-owners wrote this great article about going from renting a job to owning a job when she became a co-owner at Pixel Spoke. And she sort of drew the analogy to like, when she bought her first house and how her behavior in the neighborhood changed from an apartment. And so I think in ESOP, maybe it's like, you know, a really nice condo in a building where everything is taken care of. But like a worker co op is really much more like, you know, they talk in the co op space about rights and responsibilities, and with worker co-ops, like, the co-owners really feel both the rights and the responsibilities, I think, to a deeper level than you do in an ESOP. All my perception though, of course, I don't know a ton about ESOPs. How did you get interested in the co op model? Yeah, it was actually an event, the annual, they call it the champion's retreat for certified B corporations, and it was a guy named Blake Jones who was one of the co-founders of Namaste Solar out of Colorado, and we had been working together on B Corp leadership stuff, so we never really talked about our companies. You know, I knew Namaste Solar was, was pretty big, like a couple 100 people, you know, much like an order of magnitude bigger than us. And so, you know, it was one of those funny moments where we were always working together on other stuff. And I, I saw him a bunch at this conference and I was like, Hey, so are you guys a worker co op? And he was like, Yeah, you know, it's like, I'd heard the intros, but it never really clicked. And that was when I was like, could we do that? Like, what does that even mean? And I think it really intrigued me that you could have a 200 person plus company. That was a worker cooperative. It kind of just did not fit my paradigm of how business worked and that kind of was what sent me down the path of really exploring. That was my entry point. So I'm guessing a lot of people listening to this have had no experience whatsoever with a worker co op. What what is a worker co op? Yeah, um, you know, one of the things that I find really helpful when explaining this to people is we all kind of know what a co op is. But we don't know the different kinds of co-ops. And so one of the ways it's traditionally explained, and I learned this on our journey is, is that there's 4 main types of co-ops. You have consumer co-ops, which we're all familiar with, those are things where the customers of the business are the owners. So REI, credit unions, a lot of food co-ops. And then you have worker co-ops where the people who work in the business are the owners of the business. And then you have purchaser co-ops, where a bunch of entities come together to aggregate their buying power. So you typically a bunch of different businesses come together and form a co op to purchase things at scale. And then you have seller co-ops, right? You have a lot of agricultural co-ops like that, like a bunch of farmers come together, and then they have like an umbrella brand so they can sort of, you know, market and sell, um, and get some of those efficiencies that they couldn't individually. So worker co-ops are one of those four kinds of cooperatives. So a business where it's owned by the workers themselves, the workers will have some kind of eligibility requirement. So, so typically like the day you work for the business, you don't become an owner, but it could happen very fast or it could happen, you know, over multiple years. And then the co-owners or the members of the cooperative elect a board and then that board in turn governs the the sort of Top executive officer of the business, that might be a really convoluted way to explain it, but that's that's my first take. What do you think, Lauren? How can I clarify that? I'm curious about what you said before about it not being a democratic management system, but you are reporting to this board chosen by the employees. Do, do you feel like you have a boss? Uh, do you still feel like it's your business? How do you think about that? I mean, they can fire me. Isn't that a boss? Yes, yeah, of course, I have a boss. I mean, I set my salary. You know, I think as the, uh, you know, as, as the former sole owner who converted to a worker co op, there's a lot of goodwill, so I hope they won't fire me. But yeah, I absolutely have a boss. I think this happens all the time in small companies, right, of hat switching, like, I'm in a meeting, am I in this meeting with like my sales hat on or my CEO hat on, or, you know, whatever other role. And this kind of just adds another piece of hat switching that needs to happen. So there's a lot of work in worker cooperatives, especially to help everyone in the company understand what are the different hats we're wearing, and in any given context, which of those hats are we all wearing, because It certainly injects this interesting dynamic of like, if, you know, Lauren and Sean and I are all co-owners and we're on the board of this cooperative, if we're meeting, maybe I'm the CEO and, you know, you guys report to me and that's the meeting we're having. Maybe it's a board meeting and, you know, one of you is the president of the board, and the other two were just kind of normal members of the board. So there's a lot of Additional clarity that you need to create to not kind of muddy the waters in a worker co op. Sean, you've been open on the podcast about your thoughts about what you might ultimately want to do with your business. How is this landing with you? I mean, I, I like a lot of what Cameron has done. You know, I've watched him, you know, on the journey and I'm sure it's not without his challenges, but I think there's something to be said for the recognition of You know, the employees who've helped build that organization, you know, and giving them a stake in the game. Correct me if I'm wrong, they, they actually have to buy in though, right? Is that correct? Yeah, so it's a very flexible model. You know, there are some key, there's 7 international cooperative principles that every co op subscribes to. And you know, perhaps the most important thing that's going to happen is if you become a worker co op, you have a board, and the board is primarily drawn from the workers and the board now governs the business. Which, like any good board should be very kind of high level, what's the mountaintop type stuff, not micromanaging. And, you know, one of the key design decisions you look at is there's co-ops where you show up as a worker and you pay $25.30 days later you're an owner and maybe you're on the board or you can, you know, be elected to the board or whatever. Um, I'm very much on the other extreme. I think we're kind of at the, we're not the most extreme worker co op, but we're kind of, I'm sure in the top maybe 10% of restrictiveness. So I shouldn't say restrictiveness. It's just that we, I really want to make sure if I'm going to own something with someone else, I really want to make sure that they understand what we're all about and that they're committed and they're not doing it for, you know, just for ego or financial gain. So we have a $10,000 buy-in, um, and you have to have worked at the company for at least 3 years and we have a really rigorous, uh, 6 to 12 month training program. So we, we, we set the bar pretty high there, but I think that's kind of obvious why we want to do that. Yeah, it's a lot different than an eSoft where you just by virtue of working at the company, you are a quote unquote owner. That's, that's a very different, different philosophy. What changes at a worker co op? What were you referring to before when you said that there really is a, you know, sense of responsibility and obligation for, for the worker owners? You know, a few things I like to talk about. So one is that one of my real misunderstandings is there's not like one conversion that happens when you become a worker cooperative. There's really 5 separate conversions that happen. And I guess I'll just briefly list them. There's the financial conversion, there's the legal conversion, there's the operational conversion, there's the cultural conversion, and then there's this kind of integration conversion where you go from, you know, being an awkward adolescent to kind of being a more mature co op. When we are bringing someone on as a new co-owner, the new job, just like, you know, you bring a new employee on and whatever their job is, you want to make sure they have both the skills, uh, and you have really good training to bring them up to speed for your organization. When we bring on a new co-owner, we're really bringing on a new board member. So we need to be able to train them to be a really good board member, and that entails a lot, right? Like financial literacy, you know, HR, strategic, savviness. You know, understanding the way agendas are structured and why meetings are run in a certain way and and all the kind of protocol that goes along with board meetings. But that's kind of like the number one thing that changes for an individual employee. And then Lauren, were you asking about the organization as a whole as well, kind of what changes? Well, I was curious first, you know, from the employee owner perspective, what it's like for them, but hearing your answer there, just the thing that intrigues me most is, it sounds like you've made the process of hiring a lot more difficult. It's a bit, it's been very difficult to hire people the last couple of years without training them, uh, to be board members. What what's your experience been? Oh, I see. Great question. Um, let's see, so we haven't made hiring any more difficult, though I think the stakes go up because everyone you hire, you know, it was always super high, but now you're asking yourself, not just, will this person be a great member of our team and culture and we see them here for 3+ years and that's standard stuff, you're also saying, do I literally want to own this business with them in 3 years from now? Because there's no, you do the time and pay 10K, you get to become an owner, right? There's no other vetting process, correct? I mean, the board votes people in or out, but so you can fire people, right? You can't. Yeah, of course you can. Yeah, yeah, but it's harder to fire a co-owner, right? That that's, that is a board thing if you want to fire a co-owner versus a regular employee. And if it turns out someone is, you know, is not the right fit and they want to become a co-owner, you can imagine that gets even more complicated. But, but we haven't actually, we haven't fortunately had that issue. But from a hiring standpoint, all the stuff I was telling you about, Lauren, that happens. Um, you know, after 2+ years on the job. We give people like a single 1 hour module on worker co-ops when they're a new employee, and we don't, we don't burden them with anything else. Like we want them to figure out how to be really great at their job, but I'm just saying that in the back of our mind, we know that they might be a future co-owner and that 2 years from now, um, You know, they'll potentially be diving into all that education around being a great co-owner and board member. Has anybody uh backed out or or like flamed out? Oh, I mean, uh, all sorts of things. Everything didn't work. Um, I mean, you know, we converted in January 2020, um. We kept hearing how we were like so on it and professional and like setting the bar high. And I remember just thinking like, like, holy bleep, if this is setting the bar high, I can't imagine what some of these other companies went through. I mean, granted we through like the COVID pandemic, my wife and I had a child in May of 2020. We really like just kind of thought we'd just really go for it in 2020, um, with all the things. But this is one of the things I am most proud of in my entire life, that this, this change that we have made. And I also think like, you know, I make the analogy to parenting, like, like it it is, it is hard. It is a lot of work. It is birthing really a a brand new company. Versus I do think that's worth something, possibly I'm not an ESOP expert, but like an ESOP, or like somebody who says, hey, we want to go open book management and have a bonus plan. Like, there are things you can do that are much less holistic than this, but when you start bringing people on as owners, like you have to have a really good answer for everything. So, you know, if we thought compensation was hard before, I think we have an amazing system now. But man, we had some really hard conversations the first several years when people first saw the full list of everyone's salaries at the company. Um, and I don't think it's because anything that we were doing was wrong. It's just really hard. And there's just a lot of skill that we've had to develop there, and I think we've had to get A lot more rigorous about how we think about um compensation and and a lot of other things as well. For our listeners who are still with us, Cameron, and are still listening after the point where you said that you divulged salaries of everybody, tell us about. That, is that an option for co-ops or is that baked into any co op model? That's just part of the way it works. I mean, I think it's baked into any co op model, right? Like if you're an owner, you get to see the books, isn't that kind of common sense? Well, in open book management, you don't have to, uh, and most companies are, right, exactly, exactly. I mean, I guess you could hide that from employees who are not yet owners, right? Like you could have a two-tier system if you want to. That's what we do. Yeah, that's what we do. But I mean, I think when you become an owner, like you get to see the books. Something I'm really curious about, Kim, is, is sometimes when I run across ESOPs, I notice the difference between them and say, a founder run business is They're, they're very reluctant, and this is a broad statement, but like they're very reluctant to make bets on things that are hard to quantify or risky. Um, you know, the kind of bets that I think owners are willing to make that, you know, sometimes don't work out, but sometimes pay off in big ways. So that can be like a strategy bet or a marketing bed or going into new markets. So I see a lot less risk taking within the ESOP type of businesses, and I'm curious how you think about that and how you think about. Ensuring that there's a culture of innovation and investment in the company when, you know, you've got more people saying, well, that's my money now. It's a great question. I don't know how to speak, you know, to like the the industries as a whole, but I think, I think one of the neat things about co-ops, and this was something we learned from kind of one of our guides, was that in, in a lot of traditional businesses, including founder-led businesses, You have this person or small group of people who come up with these visionary ideas, and then they come back and they do change management, AKA trying to like force it down everyone else's throats. And co ops kind of reverse that. And it's pretty messy, right? It's been amazing to watch how we kind of flip that. We do the change management up front. And this is, this is what, you know, one of our, our advisors told us. And then like, click, you get through the change management, you decide what you're gonna do, and then we just go. There's like zero gossip, like all that stuff where people are coming back saying, Oh, I told you so. I didn't think that was gonna work. Oh, I never really believed in that. Or I thought we agreed on this, but now these people are going off and doing that other thing. I, I'm overstating it's not zero, but like compared to what it used to be like, it, it's almost zero. And so, I find that degree of like intense alignment and the wisdom and and creative thinking by really kind of, you know, flipping the pyramid and getting all their input up front is just incredible. I also think you're absolutely right that, you know, there's a reason these kind of founder led models, you know, can be so effective, right? Like it's just a democracy or even just highly inclusive approaches. tend to be slower in certain ways. And so, you know, I, I totally get why this doesn't work for like a VC funded company. Yeah, but I, but I guess I, I, I think it's a great question. It feels a little bit philosophical to me. I think I am more interested in the The impact Pixel Spoke creates and the value that it creates in the world. And so innovation is just kind of a means to an end. Um, but if we're generating a ton of value and impact, I don't think I really care if we're innovative or not. Now, I think you probably have to be innovative to do that, but, but it's not really like a leading. And in of itself for me personally. Well, I mean, I think you set up this conversation a lot with the 20 mile march too, right? Your philosophy is, is one of steady improvement and, you know, that can be very different than like, hey, let's try this big crazy idea over here that can like 10x our company. It's just a different approach. Yeah, I'm not sure our culture could scale 10x. Mhm. Cameron, has there been a time where you wanted to go in one direction and the board chose another and you had to go along with it? Yeah, that's been a lot. I'll see if I can think of a specific one. And and how painful was it, if it was painful? Couldn't have been so painful. I can't remember it. Yeah, actually, I will share one that that I think is pretty cool, that cost me a lot of sleep and made me really angry. We removed uh merit from our Ra's philosophy. So we removed that kind of subjective piece where someone's manager gets to say. You know, hey, Sean and Lauren had, you know, these were their numbers, they're in the same role. But I just feel like Lauren brings a little something extra, you know, like, like maybe it's contribution on strategic priorities or it's innovative ideas, or it's, you know, glue in the culture or who knows what. I think you're right on, Cameron. Yeah, I mean, clearly, clearly if I pick one or two, I mean, I've known Sean for a long time, so, uh, damn it, we just removed that and that to me was just so antithetical to how I think of business working, but it was also, you know, reflecting on it like. Way over a year later, I went and did even more reading. And I think they were absolutely right. And I think it strengthened the co op. I think there are reasons why subjective merit raises work really well in some contexts. And I also think there's ways in which they're really destructive. And detrimental to culture and productivity. So, anyway, yeah, that was one example, and I was just straight up like outvoted. Like, no, and, and I tried to like politic and throw my title around and whatever. And people, people listen to me, but they just disagreed with me. And I will say one of the most kind of beautiful things about this model, and, you know, I'm, I'm stepping down as CEO to move into like a coaching advisory role. So, so this gives me so much like excitement and enthusiasm for the future of Pixelspo. is they just keep consistently making the right decisions. Uh, maybe even and especially when I disagree with them. What's the financial aspect of this? Did you essentially sell the company? Um, did you get a payout like you would have with an ESOP? How did that work? Yeah, so, um. Obviously, caveat, I'm not a, you know, financial adviser, accountant, anything like that. But, you know, my understanding is there's no real tax benefit compared to an ESOP. Um, you can structure, yeah, it's a little weird, like you assuming you stick around, some, some owners when they sell, when they convert to a co op, they just piece out right then and there. That's not what I wanted to do. But for the most part, yeah, you kind of like sell to yourself. So like old you sells to new you as part of this ownership group. And you can do that in a bunch of ways. You can bring in outside financing, you can bring in, you know, outside debt, you know, through a credit union or bank. You could do a promissory note through the company. What we did is a very cool um model, which was uh maybe a little simpler from my perspective, where we just converted, um, we basically created a bunch of preferred stock, which was mine and the preferred stock paid out like 6.5% a year. And it gets paid first before any of the worker owners, but it has no controlling rights. So it's kind of like this big block of stock that gets like a guaranteed payment, and it gets paid, you know, the preferred stock eats before the worker stock eats, but then the workers get kind of all the remaining upside. So that's kind of how you balance the the interest of those two. And then over the next couple of years, we sold a lot of that stock off to impact investors. And then, because this is, I was a little slow and this is kind of a new world, we actually realized that we should just be buying these preferred shares down because we have so much cash on hand, and it's dumb to be like paying out 6.5% on these shares when we could just buy the shares down and return more money to the worker owners. That's a lot of details. There's kind of like 4 or 5 standard ways, but yeah, basically, old you is selling to new you as part of this cooperative ownership group. How did you value the company? Um, I did a very conservative valuation with our, our CPA, and it was basically, uh, I think it was like the last 3 years of EIA plus, uh, you know, assets, we didn't really have any liabilities. And then I think there was like a 40% discount, which is pretty generous for like being a privately held company and maybe we call it a goodwill discount. I don't know. Anyway, I, I mean, I, I did not do this to to maximize my returns. Right. I think I certainly could have asked for a bigger price and gotten it from the ownership group. Certainly the biggest return would have been like a, a sale to a strategic partner in the credit union space. But I also think it's important to highlight, you know, that I still feel very grateful and I did very well, you know, so that, so there's, I, I think to me it's all about balancing multiple stakeholders. And if, you know, my, my personal finances were my only stakeholder, you know, it probably wasn't the best decision, but I felt like I got to kind of serve the needs of all stakeholders very fairly. Given your possession of the preferred stock, does it make sense to say that you continue to own a certain percentage of the business that you're gradually selling down, or how do you think about that? It's a great question. It's kind of a funny vehicle. Um, I think, yeah, it's absolutely true to say that I am, you know, I still own. I don't know what the numbers are at this point, maybe about 50% of the preferred shares at Pixel spoke. It's just important to be clear that they carry no voting rights. So I have one of 10 co-owner shares. Um, with with all have one equal vote. But you said you also sold some to investors, is that right? Yeah, so, so of the preferred shares, I used to own 100%. I granted a small number of them as kind of a loyalty bonus to, you know, we had some very long tenured employees, um, and then we sold off several $100,000 to impact investors. And then we actually switched to just buying down all of the preferred shares, so that the total number of preferred shares has shrunk by almost 50% since when we converted. Do the investors have a seat on the board? Um, they don't. Yeah, I mean, so one of the key things about a worker co op is that, you know, it must be governed and controlled by the workers. So there must be, you know, typically a majority of the board must be worker owners. Um, but we do have provisions to have, you know, we could have an outside investor, a credit union expert would be another kind of obvious person to have on the board. We haven't done that yet, and that's just purely not wanting to add unnecessary complexity. What's the typical reaction you get when you meet other business owners and you tell them how this works? You know what's super weird, Lauren? Is they're super interested. I thought no one cared. I thought, I thought maybe like kind of like, you know, weird Portland hippie folks would be into it, and no one else, but I never talked about this publicly until this year. I mean, I wasn't like hiding it, right? But I'd never like done any kind of like group presentations. And I've done 3 this year and I've been kind of stunned that they've been. Like in some cases, like too full for additional people to even show up to the presentation. You know, I think It speaks to a hunger for alternative paths for business owners. I think in a lot of ways, sole proprietors or kind of small privately held ownership groups know that kind of that there will be a next chapter and the options really aren't that good. So, you know, I just think that This this is one of a small number of options that we have uh for our exit from our business. It's going to happen to all of us, right? Like this is not optional. It's like death. It's going to happen to all of us. Maybe that's dark, but like it's going to happen. And this might be our single biggest legacy as a business owner, how we think to transition our ownership to whoever the next you know owner or owners will be. And I think, you know, we owe it to ourselves as business owners and entrepreneurs to really understand all those models to figure out what is the thing that's going to be in, in, you know, deepest integrity with our own, you know, personal purpose, values and needs. You know, it's interesting, it's really sparks a thought, Cam, like, if you see the baby boomer generations, you know, this really large cohort, many of whom own businesses. And they're, you know, retiring, dying, etc. Are there enough buyers for all those businesses? And then even like going forward, we know the answer to that. I, I think it's no. It's definitely no. Yeah, so I just, I wonder if you've kind of stumbled on to like, this is a this is a path that could be more sustainable, at least in, you know, as, as an option for the right type of person. Yeah, I don't know if you've thought about that. Isn't it called like the gray tsunami? I mean, I think there's this awareness of the sheer number of businesses where their owners, you know, there are owner operators, and they're just going to be retiring, you know, in the next, you know, 5 to 10 years. And yeah, there's absolutely not enough buyers for them. And I think, you know, I might even go back and amend my previous statement. I think with more than a little bit of pride, like we had a pretty sexy company. It was a small company, but we had, we had some pretty cool options from a sales standpoint, or really I did as a sole owner. There's also a lot of businesses that don't really have any options, and this might literally be your best financial option, um, you know, to, to figure out how to get the people who are inside of your business, who know it, who love it, who have a deeply vested interest in it, because it's their livelihood. Those might actually be your most lucrative and your best buyers for your company, you know, including in some cases, like a 5 or 10 year, you know, promissory note or earn out or whatever. There's a lot of ways to structure it. And I know there are a lot of people working, you know, sort of in some of the co op associations and at a policy level of how can we get more support to get education to all these boomers who will likely be retiring so they can be more intentional about how they transition their companies and to really promote employee ownership. Because I think, you know, we haven't gotten into this, but I mean, employee ownership does wonderful things for the world. Um, and, and if, if you're like me and you believe that inequality is at the root of basically every social ill and problem that we see in our society today, you know, that it, it basically blocks the better angels of our nature, our, our. Our empathy, our vulnerability, our generosity, like employee ownership is an antidote to all of that. Is it too late for a baby boomer who's part of the gray or silver tsunami to consider this option? I guess what I'm really asking is what, what are the requirements for a company? What makes a company a good candidate to choose this path? And would it work for someone in that situation? I mean, it absolutely would. I know there's a ton of people working on, you know, this specific issue of how to, how to, and there are a lot of programs where there's funding available to pay for consultants, um, where people are really looking at a model where, unlike what I did, where I, you know, I've stayed for 4 years after the conversion, where like the owner just wants to get out, right? They want to convert and they want to leave. And there's a lot of support in the form of, you know, grants and other kinds of assistance out there. There's a great group out of the Bay Area called Project Equity, which is focused on this, um. There's the US Federation for Worker Cooperatives. There's just a bunch of great groups out there. A lot of things happening on state and citywide city levels. Um, so it's absolutely not too late. Does the business have to be profitable at the time of transition? Oh yeah, thank you. I was like, I knew I had something else I was trying to say, and Lauren, you read my mind. Big caveat, right? I'm not an expert in this. I'm an expert in pixels book cooperative, right? But my sense is, you can manage just about any situation or most situations in turn, you know, a struggling business model, um, low profitability, you know, etc. But I think where it doesn't work is if you have really bad retention, because a worker co op is made up of the workers, right? And if you have the kind of company where like no one's been there longer than 6 months, I mean, right, we have a 3-year requirement to become, you know, uh, a co-owner, and we have a 6 to 12 month candidate period with extensive training. If everyone's leaving after 6 months, it's pretty hard to see how you build a stable worker co op out of it. You know, one of the, the phrases I've liked, you know, that I've heard is that Um, in worker cooperatives, like our business model is trust, and you can't have trust without, you know, meaningful relationships and some degree of longevity. So I would imagine that's kind of the only True deal breaker, but otherwise, I think, I, I think the stronger your business model, right, and the, the higher your profitability and all that stuff, the easier it will be. But I think that that kind of like committed core of workers who will carry the business through that transition are probably the one like critical element you have to have. Have you lost any worker owners? Oh, good question. Not really, but I'll say one thing that happened that was really cool was, uh, we had a woman. Hannah Ferber, who is amazing, was and is amazing, um, still a good friend, and she had been with us for almost a decade. And so she was going to be kind of part of this like founding group. And we were all kind of scared, right? We'd never done this. We didn't, I mean, we had advisors, but we didn't know what we were doing. And she was kind of one of those people who made us feel all safe because she's really, really good at what she does and she's a, you know, beautiful human on top of it. And then she actually left, you know, after like a decade at the company, maybe 4 months before the conversion. Like we'd announced it to the whole company. We said this is the initial group. It was definitely one of those like, you know, like sharp intake of breath, and everyone's kind of taken aback. You know, as amazing as she is and as much as, like, you know, she is and was missed, it was actually, I think, really great to have someone pull out, you know, like the moment before they became an owner. Right. Like, we're not trying to lock people in. And she got this like awesome offer for a thing that just was, I mean, when she told me it was always like, yeah, that makes sense. That feels like the right next step for you. And, you know, I'm still kind of mad at that company for like poaching her, but, you know, that's life, right? And so I think that just taught us a really good lesson that it's like, at the end of the day, like the co op is far bigger than any of the individual people and as long as we kind of maintain, like, you know, a healthy and committed core. You know, we should celebrate and embrace, you know, anyone who finds a right next step for them because ultimately, you know, we did this co op conversion for the ultimate betterment, yes of the world, yes of our clients, but of our workers. And so if there comes a point where like the next best thing for them is outside of the cooperative, like we should be their biggest fans. So, that being said, we've not lost a co-owner since the actual conversion, though I will be the first at the end of the year. Sean, are you sold? Yeah, I mean, I think it's a, I think like Ham said, like the more options there are out there, the better. I mean, there are really great businesses out there for which You know, there probably isn't a great buyer, you know, there, there are a lot of businesses that nobody really wants to buy, but yet they've got great employees and they're doing something valuable. And I'm really aligned with Cam on, I think inequality, wealth inequality is, is the cancer, and I think anything that can be a force against that is is a good thing, and I think more people need to know about it. Cameron, do you know what you're going to do when you walk away? I feel like I'm in that, that phase at the end of college when I would get together and, and people would ask me what I was going to do, and I would just like spew all these ideas at them, and they would get this really nervous look on their face and, you know, want to go call my parents to say it was so sad that they somewhat promising child had, you know, turned into a totally lost soul. But I, I can give you a quick, quick overview. I've been doing training around, uh, marriage counseling all year. I think my, you know, the the through line in my entire career is relationships. I'm fascinated by them. Um, so I started doing couples' workshops. I don't know if that'll be something that grows or stays steady or fades away, but I, I really love that work, helping couples to better connect. I have had a few nibbles around doing consulting to help companies become worker co-ops. I don't, similarly, I don't know how much I want to be a consultant, but there are a couple really inspiring companies where I think if this could really inspire big systemic change. Then it would be kind of an honor and a pleasure to be a part of it. And then the last thing I've started is a research project that's sort of very close near and dear to my heart. My wife is also an entrepreneur. So it's a research project around entrepreneurial couples and kind of thinking about What is it about the entrepreneurial couple that is different from most committed relationships and kind of what uh what lessons and learnings and support can we provide to couples or what are both are entrepreneurs to have a more happy and fulfilling and loving relationship. So that's my smorgasbord. You asked, I warned you, uh, I can't promise nothing. You know, 12 months from now, what it'll be, but that's kind of what I'm thinking now. That was a really interesting answer, none of which I would have anticipated. I, you know. Well, you did it. My thanks to Sean Bussey and Cameron Madill, and of course, to our sponsor, the Great Game of Business, which helps businesses use an open book management system to build healthier companies. You can learn more at greatgame.com. Thanks, everybody. Wait, wait, don't leave yet. If you have a question or a comment that you'd like the 21 hat's owners to address, send it to me by replying to your morning report or by email at lauren@21hats.com. That's L O R E N at 21 hats.com. Do it now before you forget and don't be afraid to tell Jay what you really think. You 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 21 hats.com. This episode was produced by Jess Thuberon, founder of Blank Word Productions. OK, now you can leave. Thanks for listening, everyone.