The Worker Co-Op Solution

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman in this week's bonus episode Cameron Mill 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 madil 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 Mill as he explains in a convers 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 CH magazine named the best newsletter for business owners and which you can subscribe to for free at 21h hats.com where you can also find transcripts of our podcast episodes and lots of other articles and interviews joining me on this episode are Shan busy of Kinesis and Cameron madil of pixel spoke the episode is titled the worker Co-op solution welcome Sean and Cameron it's great to have you both here Cameron is 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 pixel spoke 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 uh driven website firm that focuses on uh building websites uh for credit unions so we have a very kind of Niche Focus there and that's what we do it's pretty 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 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 like make a difference in the world versus just by kind of like you know having every client be new and 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 a stronger more stable uh defensible business model kind of from a you know for like that the head- centered stuff from a a heart- centered Focus we had stumbled on to 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 5,000 Credit Unions there are still you know Credit Unions where there's literally like one or two employees where you 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 a thousand of them are and we only take on four to six new clients a year sometimes three to six um and I think our total client roster is like 30 it's in the low mid-30s I guess so 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 units 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 5,000 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 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 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 a version of if you heard you know Jim Collins uh story of the 20 mile March which I think Sean hates but you know whatever he'll get over it hey I I loved I I loved it and now I'm questioning it how about that all right well you know what this this this podcast is about me not you no we love to hear we love to hear you ha but 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 o we can get 20 or 30 this year we just say like nope time to like 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 cool what are the headwinds in the business these dayss let's see so so industrywide the credit union industry the financial services industry and you guys probably you know sure everyone listening knows this it used to be that deposit 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 your you know in your bank or credit un 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 Mega banks 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 as a version of the the 20 mile March money just flooded into digital during covid right I mean it's pretty obvious if 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 in 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 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 um you know with only three to six new clients a year actually I should say three to six new redesigns a year so if we get two or three 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 like 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 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 if someone has a going concern of a business they're going to at least you know they're going to be interested in 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 yep 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 have you know have a degree of of you know breakdown that that results in problems one two three 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 ha Day times I'm guessing they're probably laying people off right now yeah I mean I don't know what's going on inside you know some of our our competitors that we we pay you know 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 eror 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 and you know as a certified BC 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 presentations and podcasts and everything else that you know is at least uh 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 spoke 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 started getting up in uh you know getting into some marketing agency groups and I started meeting uh 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 in my you know early to mid-30s and you know men and women and their they're 50s and 60s who own agencies and kind of being like do I want to be this person what would that be like 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 there's 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 at 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 pixel spoke and then I started looking at folks who sold their companies and all the various different configurations that 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 a way I can do this that feels like it would be in Integrity with all the state holders 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 stumber across the the worker Co-op and when you say you were looking for it 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 I can say like with Clarity it was absolutely not an organized search yeah 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' had 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 like an online banking company or some kind of big uh fin Tech there's also the option to kind of sell to a few key internal people the kind of golden handcuffs thing 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 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 I did heard a lot about them and I I've you know we've been open book management since 2007 or something like that maybe 2008 uh 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 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 five million in revenue and and you know I've heard numbers like a million a year and heit my sense is it's meant for bigger companies it also didn't really speak to me and 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 we talk about is Mission lock it doesn't really say very much about the purpose and and so I actually part of the way we designed it is like 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 an ESOP 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 had bigger companies too In fairness right so maybe I would have gone down that path I don't know but yeah I just didn't 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 I am really attracted to um kind of the elements of like like teaching and practicing and living democratic governments not Democratic management not 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 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 uh the co-op model yeah it it was actually um an event the the um annual they call it the Champions Retreat um for certified B corporations and it was a guy named Blake Jones who was one of the co-founders of Namaste solar um out of Colorado and we had been working together on bcorp leadership stuff so we never really talked about our companies you know and I knew Namaste solar was was pretty big like a couple hundred 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 like 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 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 is a worker Co-op yeah um you know one of the things that I 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 four 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 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 work ERS will have some kind of Eligibility requirement so so typically like the day you you work for the business you don't become an owner um but it could happen very fast or it could happen you know over multiple years and then the then the co-owners or the 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 how can I clarify that I'm curious uh 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 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 that set my salary you know I think as the uh you know as as the former Soul 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 us interesting Dynamic of like if you know Lauren and Shawn and I are all co-owners and we're on the 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 the board so there's a lot of additional Clarity that you need to create to not kind of Muddy the waters um 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 seven 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 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 and 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 three years and we have a really rigorous uh six 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 ESOP 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 really five 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 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 organ organization as a whole as well kind of what changes well I was curious first you know from the uh employee owner uh 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'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 can we see them here for three plus years and that standard stuff you're also saying do I literally want to own this business with them in three 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 yeah of course you can yeah yeah but it's it's harder to fire a co-owner right that that's a that is a boor thing if you want to fire a co-owner versus a regular employee oh interesting 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 fortunately had that issue but from a hiring standpoint all the stuff I was telling you about Lauren that happened um you know after two plus years on the job we give people like a a single on 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 two 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 co pandemic my wife and I had a child in May of 2020 we really like just kind of thought we 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 brand new company versus I do think that's where 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 CU 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 uh and are still listening after the point where you said that you divulge 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 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 owners 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 and 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 cam 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 BET 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 bed or a marketing bed or going into new markets so I see a lot less risk taking within the ESOP type 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 um it's a great question I 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 Le 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 advisers told us and then like click you get through the change management you decide what you're going to do and 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 going to 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'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 upfront 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 it democracy or even just highly inclusive approaches tend to be slower in certain ways and so you know I totally get why this doesn't work for like a VC funded company yeah but 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 end 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 uh 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 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 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 remove 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 clear clearly had to pick one of you twoo I mean I've known Sean for a long time what done so 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 context 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 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 pixel spoke is they just keep consistently making the right decisions uh maybe even in 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 the 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 promisory note through the company what we did is a a very cool uh model which was 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 and a half% a year and 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 and so that's kind of how you balance the the interest of those two and then over the next next couple years we sold um 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 duh 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 six and a half% on these shares well 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 four or five standard ways but yeah basically old you is selling to new you as part of this coop operative 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 three years of evit dah plus uh you know assets M 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 called it a goodwi 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 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 to be clear that they carry no voting rights so I have one of 10 co-owner shares um with which 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 hundred, to impact investors and then we actually switched to just buying down all of the preferred shares so the the total number of preferred shares has shrunk by almost half 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 it 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 had 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 three 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 Soul Proprietors or or or kind of small privately held ownership groups know that kind of the 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 G 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 it's really Sparks a thought cam like if you see the baby boomer Generations you know this really large cohort many of whom who 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 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' 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 they're 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 five or 10 year you know promisory 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 in some of the 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 Consulting um where people are really looking at a model where unlike what I did where i' you know I've stayed for four 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 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 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 Lauren you read my mind big caveat right I'm I'm not an expert in this I'm I'm an expert in in pixel spoke 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 we're 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 six months I mean right we have a three-year requirement to become you know uh a co-owner and we have a six to 12mth candidate period with extensive training if everyone's leaving after six months it's pretty hard to see how you build a stable worker Co-op out of that you know one of the the phrases I've liked you know that I've heard is that um in 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 other 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 the 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 ooh good question not really but I'll say one thing that happened that was really cool was um 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 had never done this we didn't I mean we had advisers 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 human on top of it and then she actually left you know after like a decade at the company maybe four months before the conversion like we had announced it to the whole company we'd 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 taking back 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 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 coaching 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 in 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 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 have not lost a co-owner since the actual conversion though I will be the the first at the end of the year Sean are you sold yeah I mean I think it's a like I think like Cam 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 there 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 in 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 their 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've 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 they're 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 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 and support can we provide to couples or one or both or entrepreneurs to have a more happy and fulfilling and loving relationship so that's my smorgus board you asked I warned you uh I can 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 am to please you know well you did it my thanks to Sean busy 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 Great game.com thanks everybody wait wait don't leave yet if you have a question or a comment that you'd like the 21 hats owners to address send it to me by replying to your Morning Report or by email at Lauren 21h hats.com that's L ren at21 hats.com do it now before you forget and don't be afraid to tell Jay what you really think he can take it and if you got something out of this conversation help us reach more business owners tell a friend subscribe and review us wherever you get your podcasts follow us on Twitter subscribe to the morning report at 21h hats.com this episode was produced by Jess Theron founder of blank word Productions okay now you can leave thanks for listening everyone [Music]