Webinar: Employee Ownership: A Business Succession and Retention Strategy

welcome everyone we will get started in just one more minute hi everyone and welcome to our webinar employee ownership a business succession and retention strategy uh thank you so much for being here for this important discussion about employee ownership as a tool for business succession for employee attraction and retention and for you know saving business owners from burnout too there are a lot of reasons that people transition to employee ownership so before we get started i would like to introduce myself and then we'll go through some housekeeping items so i'm courtney berner i'm the executive director of the university of wisconsin center for cooperatives um we are a wisconsin-based organization that does outreach education and research on the cooperative business model and we help start new co-ops and help people transition their businesses to the cooperative model this webinar today is also sponsored by mcdc the madison cooperative development coalition wisconsin center for employee ownership and uw extension so today's webinar will run for approximately 60 minutes participant lines are muted this is a webinar format so we will have a robust discussion that will be followed by q a but please feel free to submit your questions via the q a box throughout the course of the webinar but we will hold taking those questions until the end this webinar is being recorded and will be posted at the uwcc website and shared out with everyone who registered we had great turnout um over 250 people registered for this event today so we know there's a lot of interest in this topic all right so um we just want to give a little bit of context before we launch into the discussion with our panelists today so you're likely here because you know um that we're in the process of a large business transition in our country um in wisconsin alone baby boomers own half of all privately held businesses it's approximately 50 000 businesses in the state of wisconsin that have an owner who will likely want to retire in the next five to 10 years um and as you'll hear from our presenters today retirement isn't the only reason reason a business owner might be thinking about selling to their employees but it certainly is an important one at this moment in our country so i want to make sure um that folks have a basic understanding of the three types of broad-based employee ownership structures we're really going to focus on two today but there are three um that are being used in the u.s right now quite extensively so the first is employee stock ownership plans um more often known as esops they are the most common form of employee ownership in the united states there are about seven thousand of them um an esop is a federally governed plan like a 401k or a profit sharing plan that can be used to share uh ownership with the employees so when an esop is created and you'll hear more about this and the specifics the business owner sells some or all of their shares to an esop trust which owns those shares on behalf of the employees um esops are a little bit more expensive to set up and maintain and thus they tend to be a better fit for larger companies um the second type i want to mention is worker cooperatives and worker cooperatives are companies that are owned and democratically controlled by the employees ownership is usually but not always open to all employees after they've met certain thresholds worker cooperatives are much less common than esops but they are growing quickly the u.s federation of worker cooperative's latest state of the sector report suggested that there are now over 600 worker cooperatives and democratic workplaces in the u.s which is more than a 30 jump since 2019. i also want to briefly mention employee ownership trusts which is the main form of employee ownership in the uk but is relatively new in the united states um employee ownership trusts are a non-retirement structure trust structure excuse me um that ensures perpetual employee ownership of a company um the company's shares go into a trust and stay there forever and the company is operated by the trustee on behalf of the employees much like an esop company so it was a really quick quick overview of those three types we'll be mostly focused on worker cooperatives and esops today but wanted to make sure everyone had a basic understanding of um again those three types of broad-based employee ownership now i would like to introduce our speakers and i'll invite them to turn on their cameras today's discussion will be moderated by steve storkin steve has been involved with employee stock ownership plans for over 25 years and he currently serves as the executive director of the employee ownership expansion network which he launched in 2019 with the goal of significantly expanding employee ownership across the us mainly through the establishment and providing support to a network of independent nonprofit state centers for employee ownership and that's how i've gotten to know steve over the last year as we've worked together to help establish the wisconsin center for employee ownership which just incorporated earlier in 20 2022 next i'd like to introduce gina schaefer who is the founder and ceo of 13 hardware stores in washington dc baltimore maryland and the surrounding or areas when i lived in dc i actually frequented the logan circle um ace hardware store so as a member of ace hardware um which is also a cooperative gina leads a multi-million dollar business that employs more than 250 people and last july she began transferring ownership of that business to her teammates through an esop lastly i'd like to introduce marty reddy who is the founding owner of terra firma building and remodeling a construction firm located in saint paul minnesota after being the sole owner of the business for about 13 years he sold the business to his employees in 2013 and that worker cooperative is now now has 31 employees 18 of whom are worker owners so um with that i'd like to turn it over to our speakers today and to thank them for spending some of their day with us thanks courtney i appreciate it a very good summary of a very complex topic of employee ownership and i wanted to uh start by saying that um a lot of times in these webinars and seminars people want to know the details of how to convert to a worker cooperative and how to create an esop and how do the shares transfer and a lot of the transactional things and if you are interested in that we certainly can do a follow-up webinar um i'll put my um email address in the in the chat i think there'll be a follow-up survey and we can go deeper but today's the purpose of today is to give you a feel for what two different worker-owned businesses uh what they've gone through what their story is the journey to employee ownership and really from you know we have such a great opportunity to hear directly from from the owners so we're gonna stay at a really high level but i think you're going to get some really great information about why and how and retention and a lot of great things so with that i'm just going to kick it off and we're just going to get a real quick overview from gina and marty on their business uh the history of the business how it started uh and stop them before they get to the employee ownership journey but kind of you know just tell us a little bit gina where you started how you got into this business and um yeah we'll go from there sure um i was a good morning everyone or good afternoon at this point depending on where you are um i was a technology reject i got laid off for three three times from technology jobs and decided that in the the growing community that i lived in here in washington dc i wanted to start the local hardware store so i approached the ace hardware cooperative that was in 2002 2003 i opened my first location in 2005 my second one and then the sky was sort of the limit from there my business partner is my husband he joined me after i opened that first location and um like courtney said we've grown to over 250 employees 13 locations now and in july of last year started that that ownership transfer um i'm going to stop because i know you wanted us to be brief steve and stop at the ownership piece so right and we will yeah we'll come right back to that and i'm already say marty same thing just a little history of your how you got into the business and uh yeah before employee ownership that sounds great um i i started out actually my bit my first business was in costa rica and i did adventure travel trips that was really where my heart was but i could not make a living doing it i tried it for four years i worked my tail off and i would come back for months at a time and do construction in minnesota and then eventually uh you know i kind of realized i needed to to have a more sustainable living and uh so i committed full time to construction did that and the company just kind of grew by a few employees a year everyone is very passionate and committed and we ran the company very democratically and i asked everybody to really bring an owner mentality to it but they didn't have actual ownership um so we did that for 13 years and then we made a transition and i'll stop there but i should say too it's building and remodeling custom custom building custom remodeling i should say that okay i was just gonna ask that follow-up question you're doing a lot of doing the wrong a lot of you're in the in homes a lot doing remodeling in homes correct yeah we're yeah we're working at people's homes we're we're part of the family uh were you know very intimate with what their you know biggest investment in their lives are uh and we just recently started a cabinet division too that's a little another little side thing we have going to so yes so courtney talked about the silver tsunami i know some people don't like the word silver tsunami so i shouldn't use it anymore but the aging business owners there's you know i think three million in the united states who are over the age of 55 who are looking for exit covet has significantly accelerated that for different reasons some business owners are coming out of koben saying i never want to go through that again i should really do what people have been telling me for a long time and that is exit planning and there's others that are saying no my business is worth more than ever maybe now's a good time to take some chips off the table um but both of you are not in that in that mode uh marty you were 13 years ago or so and you know gina just recently so i'll start with you gina just can you give a little you can go into the employee ownership piece now what what caused you to start thinking about selling your business um and then what what was important to you i think that's going to drive you into employee ownership we can talk about the steps of employee ownership later but let's just preface it by the story of how you got into the idea of selling your business or a portion of your business one of the the benefits that i had as being part of the ace hardware cooperative is that i had all of the demographics from the time i started and i was always told you know the average a store owner was x age and uh the this is the percentage that had a succession plan and when i opened my first store i was 31 so not in my brain not old enough to think about retirement certainly and i was just starting my business but people immediately started saying what's your what's your exit strategy what's your exit strategy and you know coming from the tech world it made a lot of sense you build a business and you sold it you know 15 seconds later to a private equity company um so i think from early on very different from a lot of my generational peers in the business i had in the back of my mind i want to figure out how i'm not going to be in this business until i'm 85 years old which is very typical in hardware and there's nothing wrong with that but i didn't think that's where i wanted to be so people were asking me all the time what's your exit strategy and then if you fast forward the things that started happening in 2018 1920 pre-pandemic all of the protests all of the civil unrest um and and because i'm here in washington dc i feel like we felt it very acutely my husband and i started talking about how we could somehow be part of the solution what is it that we were going to try and do as a legacy for our business with our team and for us that eventually came to mean we're gonna sell it to the employees and so what started as uh hey don't don't become this typically generational business that that doesn't have a succession turned into you know what is that succession how do you make it part of some societal solution if you will um and so it was less it was less about i'm going to sell to you know to receive proceeds to go do something else there was there was a an emotional piece behind what used to when you started thinking about selling your business yeah there was a very emotional piece i mean there's also a funny piece my dad retired at 55 and i was sworn that i would beat him to retirement um i don't plan on technically ever retiring but in this particular role um i wanted to make sure that we had a clear and concise plan yes okay and marty how about you what how old were you when you started thinking of when this all started coming down and you know what what were you thinking um you said you had democratic workplace and you want i think you wanted some turn that ownership mentality into reality right i think that's what you and i talked about yeah exactly i would say we first read john abrams book the company we keep in 2010 uh so i would have been 40 at the time um and i was that's an eye-opening book it was for me and i i would encourage other folks to read that he's got a couple of books out there um it tells the story of his journey um and i could see that that was going to be a path for us to be able to retain employees kind of the way it works in in my line of business is people generally kind of spin off and start their own thing and you kind of lose your top talent and i could see that we could really reach a much better potential much greater potential as a group if we could stay together and so i saw that as a means to entice people to stay together and kind of strengthen our company and then also strengthen individual efforts um i think the second part of it was actually the personal part of it and you know gina shared that story about her dad and getting into retirement and i think that is true there's a real personal element element of it for me and um my wife and i were seeing like a financial therapist in town who she's well known and she's on npr and she said you know most successful entrepreneurs when they're they're seeing me here they're on their you know maybe their third marriage and they're strange from their kids and i get it like you're married to your business and i was working you know easily 60 hours a week and i we just were having our first baby and i kind of wanted to stand to have that first marriage be lasting and i was like i i think if i can share some of the responsibility with my employees then um and share with the successes and the rewards too it might allow my personal life to be more fulfilling so that was a big part of it for me i think you mentioned something that a lot of people um i mean i shouldn't say a lot but that happens a lot of time which is you wanted to shift responsibility but not every owner is willing to shift ownership to make that happen a lot of times it's like okay i don't want to be 60 hours so i'm just going to put that on my employees i'm going to have some succession but i think what i see in other employee-owned companies is it's that the owner realizes that having a stake in the game and having some equity is so important to make that happen it's not just responsibilities and a higher paycheck i think the equity is there and we'll talk a little bit about about retention strategies and how that works as well gina you're just getting into this so we we may not have a lot of stories on retention but i'm sure you'll have some ideas um gina can you tell me a little bit about how you got down the path of employee ownership just maybe your journey to employee ownership how you found out about it the importance of a good team uh let's start to get into that transition because i think there's a lot of people on the call that have thought about it and have questions about what do i do what's my first step how do i get there one of the absolute very first steps for everyone to understand there's no money outlay from the employees in an esop and when mark my husband and i started exploring our options that we didn't know that that always it was always um a roadblock for us because we just assumed and we hadn't bothered to find the answer um how an esop was funded and then we were in colorado at the um brewery that owns the fat tire brand new belgium brewery and they at the time were nisop and the associate who was giving us the young woman who was giving us the tour was just so enthusiastic about being an owner of that brewery that when we left colorado we decided we really needed to explore the option of the esop better so the first thing we did i think was called steve actually set us straight on the who pays for what um and honestly we felt like once we had that question answered we could just take off um when you form an e-stop you put together a team of consultants trustees attorneys folks around you who are who are required as part of the process it goes through a department of um labor approval process so we went through all of our due diligence and choosing who that team was going to be and that started the valuation process of the current company as it stood so we could figure out what our company was valued at um and and i'm not i could i can stop there and see if you have a question steve if that was yeah i think maybe i'll just follow up with um a couple questions which one of the clarification um tell us how if the employees didn't come to you and write checks in a really brief you know simple format how did you get how did you get paid how is that happening right now because you your purchase we probably didn't mention this but the purchase of your company was for 30 right correct so you sold 30 of your company to the employees can you talk a little bit about how that payback process is working yeah and and that was a huge educational process for for us as well we have since 2004-2005 uh banked with national cooperative bank i think domi's on the call and they are an amazing banking partner for us um they also understand esops which was super helpful um we got a loan for the 30 of the purchase from national cooperative bank uh mark and i did which we then loaned to the business to pay us off so i always when i'm explaining it i always think it's this big circle bank you know gina and mark get a loan we give it to the business the business gives it back to us the business holds the note and then pays us uh pays the bank sorry for that loan on behalf of the employees on behalf of the trust that holds the esa um and so that's where the 30 came from and then that's how it's being paid back to the bank i think in its simplest form people should know that there's a loan in an esop and it's either the selling shareholder who loans the money or a bank is involved or both and the easiest way to explain it is that as that loan is paid off there's a lot of different moving parts but as that loan has paid off the shares that they bought are released over time so if you have a loan for 15 or 20 years every year that that's paid those shares are released to the employees who are working there um you know it can get very confusing but just know that the employees are not writing a check it is a loan for that 30 percent can i say something steve i think one of the questions that i had to learn too was that you don't have to just sell 30 you can sell in in you know one transaction if that's what you want you can you can break that up into tranches that are you're comfortable with or that financially makes sense for the business that you're running that's a great point i think for a long time i did this i was in this business for since 1996 and there was a reason to sell 100 of your company to an esop and i think a lot of companies went 100 but there's a lot of people in your situation gina who are kind of dipping your toe in there to say you know what i do want to give my employees equity in the company i want to see what happens it doesn't mean that you have to sell the other 70 percent you could get down there at the end of the road and you can say you know what it makes more sense to sell it to another private equity or another firm maybe you're not going to go there but if if you do the 30 will be going to the employees so it's it's a way for you to get into employee ownership not all at once but you could have gone 100 and marty your story is a little bit different from a worker cooperative standpoint the structure's a little different um did you sell 100 right out of the gate or how did your transaction work it was 100 and actually my understanding is that is actually a legal requirement with the type of business that we are which is a uh worker-owned cooperative that they're you can't do a partial right so you know on uh november 1st uh 2013 you know i went from having ownership the day before to having one share so i was the seller and then also um the also one of the buyers uh so i was in kind of an interesting uh interesting position so when we started out in 2013 we had eight owners so eight kind of founding members of the cooperative and i was one of those eight and then i was also the the seller my wife and i sold the business to that cooperative so in that process um there was um in a walk worker cooperative unlike an esop the buyers are the employees and there is a typically a small purchase price or small buy-in can you talk a little bit about that in a little bit how you loan the money to the company yeah so there's two different things one is the buy-in from the employee and then another thing is the purchase of the business so those are really two very different things and that was something i had to get my head around i suppose it could be structured in some situations where they are kind of linked but in our situation they really we kept that very separate so the company currently is still buying the business from my wife and i um that was a 15-year loan and we didn't get any banks involved we just decided that we would sell we would finance the entire thing so my wife and i had said we will loan you the amount the the company was appraised at a certain amount and then we decided what amount we wanted to sell it for which was actually less than the appraised amount because we felt like we wanted to put the co-op in a really good spot to be able to succeed uh and then we you know worked on a agreed-upon interest rate over those 15 years and there's certain financial tax reasons why 15 years is a good amount that was on the advice of accountants that were helping us and then we also did this kind of bridge loan also to the co-op which was just an operations cash because when they started out they really didn't have any money uh so we loaned them some kind of startup cash as well but since i was the seller and the founder of the company i knew the finances of the company super well so i like 100 confidence like hey we'll nail this was it felt you know there's some risk for us but i was pretty confident that it was going to work out um yeah and then so then each each member is we followed the john abrams model which is uh the buy-in amount for a new owner an incoming owner uh is the price is the price of a decent used car um that's that was kind of the their way they've set up the structure so we sort of aimed for that um i don't know that we've kept up with it i feel like used cars have gone up a lot and we haven't raised the price much um so it gets to be a better and better deal to buy in but we vote on the buying amount every year so so as a new employee we go step forward just a little bit but if i come work for you um i maybe i put in a certain amount of time um i can buy into the company and become an owner and have one share one vote um in the future right how does that work for you yeah so for us there's it's uh there's about 10 requirements that you have to meet the big ones are like you have to work here for four years um you have to uh submit a letter of intent you have to show that you um are committed to the core values of the company that you intend to work here for the foreseeable future you have to get 90 of the current owners votes so for approval if you don't get it on your first try we encourage people to try again um you know we you have to be an exemplary employee and a committed employee and the standards are high um and not everybody gets it the first time and we say hey these are the things to work on here's what it could be a personal issue it could be a you know some other i mean a relationship how you work with your co-workers as opposed to just like hey i'm a really technically skilled carpenter but i'm hard to work with anyways you know we you know it's we work through those things and then the buy-in amount you have to submit a check so yeah that and then we actually to even make it easier you will loan you the money at zero interest over three years for half of the buying amount so we're trying to not make that be an obstacle like we want you to be an owner and we don't want finances to be an obstacle but you got to put some skin in the game as they say and i think that's that's a really big differentiation between a worker cooperative and an esop gina you know when you announced the esop to your workers i'm sure they're all still scratching their head because that was just over 12 months ago that you did that right and um you know unlike a worker cooperative they just become owners um you know they are receiving allocations of stock because they are putting in sweat equity they don't have to have all of these other requirements and so just a little feedback from you on how's that going how was that announcement made and what are they thinking i was really impressed with your marketing so if anybody wants to check it out maybe gina can put a link in but they've done an amazing job already so thanks steve uh we it was so it was last july a little less than a little less than a year so we actually haven't had our first valuation yet which will actually show a dollar amount to the to the owners we have a little there's some criteria that we set up and that you have to work with us for one year and a thousand hours in order to become an owner so on that day in july when we made the announcement about 249 i think teammates we had 160 of them roughly became automatic owners in the company co-owners in the company um so one those were the folks who had been here with us for one year and a thousand hours and then we also um we were able to carve out anyone over under 18 because those technically typically aren't people that make it to a year anyway because they're just here for seasonal purposes or you know college breaks so um we made the announcement uh we worked with one america which is a retirement plan provider that also really understands esops they came to a meeting with us to be on hand to explain to the associates um what an esot means how it's a slow retirement build how they were going to help in this whole process and so they were they were super instrumental we just did a big kickoff meeting um i gave another brief history of the company folks knew about that um and then talked about where we were going down the road and why what i hadn't anticipated and maybe i'll get to this in a little bit but what i hadn't anticipated is that a lot of folks thought that that meant i was automatically leaving or that mark was automatically leaving and honestly it never occurred to me i probably should have said up front i'm not going anywhere um you know until we can transition my role as ceo i am the ceo like i'm you know certainly planning on being here too at least in a figure figurehead position if they give me credit for that um until until i've been replaced and so i should have said that up front in that meeting because i think that that caused some fairly quick consternation among the team yeah and i think there's there's some questions roaming or roaming around here in the chat to talk a little bit about that um that concept of leaving uh and and the change that's happening and i think it is important that people are asking also what makes a good you know what kind of business makes a good business for employee ownership and in my experience over the last 25 years i think the businesses that have an owner like both of you who are even if you're five years from retiring and so they're you're farther down the road than both of you or a business owner who's willing to stick around make sure that the business works wants to you know does this early enough and that that's a profitable business that has a succession plan in place an exit a plan for what you're going to do to replace and i know ginny you probably have that had that even before and probably building it now marty as well but i think if you're asking the question on what makes a good business candidate for an employee ownership model i think it has to be an owner that's willing to stay around for a little while profitable but most importantly is that they have that exit plan succession team in place so maybe marty you can talk a little bit about how that's going over the last 13 years for you yeah um it's a great it's a great question and um it's it's an evolution for us um i would say right now i'm pretty confident that if if i walked out of here tomorrow and flew to costa rica and never came back the business would the business would do okay they would be fine it would be a little bit of a shock but they'd be okay there the first couple years it would have been pretty tough um so we've come a long way since 2013. um but i would say that is a pretty big focus for us right now is to make sure that the definitions of everyone's roles are clear enough that we can fill them and i mean it's like ig is not in her head because she knows she's like yeah like how do i hand this off to somebody else there's so much just knowledge that's floating around up here and how do you get it on paper and train somebody um and you know it's gonna be fine somebody will step in when the void's there or an ideal world it's a really deliberate thing where we've really identified who that person is and then when my official end date is which i don't even know when that is um so yeah that's a long answer but gina could should probably or steve back to you all right gina if anything you want to add on that no i no i'm gonna i'll applause no okay i think the last thing i will touch on when it comes to your transaction and what we'll talk about employees next and retention a little bit about that but a lot of times there's some misinformation out there that these structures are complex they're expensive and the owner doesn't get the value that they should that they should just put a stake in the ground just like at selling a house i'm going to put a stake in the ground i'm going to sell my business someone's going to walk in they're going to look at it and they're going to say you know they're going to walk in my house or walk in my business and say yep looks good they're going to write me a check um when in reality it's even worse than selling a house they come in they open the drawers they take the silverware out i mean they they have to get in deep so could you talk a little bit gina about your experience in a did you feel like you got a fair value um and what was the process like i'm not going to sugarcoat it and say it wasn't complex and it wasn't expensive but do you think it was any more expensive and intrusive than something some other form and maybe did you think of any other forms i love this question because my my husband does all the finances and so i can say that it was easy as pie we did give pies to all of our team and said we're giving you your piece of the pie which is how we made it which was a lot of fun but mark had to deal with most of the finances it is expensive it is not inexpensive however um there were several so when i said that the first thing i wish i had known way back when was that the employees don't have an outlay of money the second thing that we should have known or or could have known is how much value there is in the tax benefits for esop that allow you to go through the whole sales process with the peace of mind that you are not giving away your business there is this this misperception that um you're selling it at a discount or you're giving it away or it's not fair market value um and the truth of the matter is is we had the people going through the drawers and you know looking at all the closets uh one was the consultant that we hired who did a fair market valuation independently of a trustee who was represent who is the representative of the esop did his own fair market assessment of the value of our company they came together to see if they were on the same page and if the people that you're working with are good business valuators that even word um you're going to come up with the true value of your company it then goes to the department of labor to make sure that it's all in the up and up we did not give our books to a private equity company to evaluate um but it had we have been told that with the tax benefits that we received we would have had to have sold the business for 20 higher than our fair market valuation because when you sell to a private equity company you do not get those tax benefits so for mark and i that was the real um that was the real kicker we we weren't looking for 20 higher we were looking for the right value for our company that was fair and and we felt like you know we've worked really hard and we want to make sure that we're not giving it away but you are not giving away your business you have you are professionally there's a professional evaluation that's done valuation that's done from multiple parties and then the second part on the private equity um you know there's private equity can be you know kind of a a bad word in business selling for some people and others it's not and so i don't want to paint it as a bad picture but for you when you talk about the emotional piece that just wasn't a that just wasn't a path you were gonna go down you're working to sell 30 percent of your company to an outside you know outside buyer or even sell 100 to an outside buyer for you emotionally and the things that you wanted to accomplish that was not going to work which is why i love employee ownership yeah so we we did we looked at a couple different options we have private equity companies that call us a lot so we had we spoke with several of them and we have some ace friends who have private equity relationships and we've seen both good and bad so we you know we knew that there were some positives to the whole deal one that we could walk away with a full bucket probably in one day and not have to think about the next the next tranches um we we talked about selling it to another ace business owner which was an option um we have gotten to a size in in the ace co-op that makes us a little bit harder of a purchase um and we operate um we don't think that we're different but because we're in an urban environment we operate within some different parameters uh logistically that make it really hard for a lot of other a store owners to grasp and so we thought that it might be a hard bite for another hardware store owner to buy us and so we did look at those other those two other options in addition to the esop marty who's who's who would have been a buyer for you maybe if you think about it instead of at the point in your career when you did it who would have been a buyer for you let's say now at the age of you know in your 50s um maybe maybe my math wasn't right did you hit yet 50 yet marty um yeah i'm almost two almost two years into it all right so who who would who would be like let's just think about it now if someone in your business a great remodeling business got a great succession plan but more than likely the employees that you work with are not going to find the dollars to buy it from you so who's who's a good buyer for you right now that you would have had to think about if the employee ownership wasn't there i honestly i don't know i mean it's it's it doesn't feel to me and i'm not first of all i'm not like really a kind of mergers and acquisitions and savvy about like who the buyers are it's just like we are such a small business you know we have just over 30 employees and we're um it seems so specific to this group that i can't even imagine there being a different owner group so i don't even know who would who would do that or how that would work and it wouldn't feel right to me and um culturally so i hadn't to me my first reaction was like i don't think anybody else would so um that's a perfect that's a perfect answer and i didn't tee that up for you but it's a perfect day it's a perfect answer because i want there are people on this call who are in the economic development world or city managers or you know not business owners but people who are working with business owners and the answer that you gave is perfect because there is an option for a small business like you maybe it's not a worker cooperative because maybe you don't have the democratic you know everybody wants to buy in that sometimes it doesn't work for people of 30 you know size of like yours or 30 people but there's al there's probably an employee-owned company out there that might bring you in an esop might bring you in or another worker cooperative there are so many different options instead of you just saying well this was a great lifestyle business and i know all of you are going to get great jobs i'll connect with other people and you shut it down and i just that's if anybody leaves that's not a business owner i just want them to know that there are options that's why we do this it's why we have the wisconsin center that's why courtney has you know the work the uwcc i mean we want people to know that so yeah uh we have about six minutes left and i just before we start answering questions um i'll start with you marty because gina's this is new to her can you tell me about employee retention i think there's a lot of people want to know is employee ownership the silver bullet to keep people from leaving i think it can and can it's it's not a perfect answer but just what's what's your experience uh on people leaving uh and staying and do you think they stay longer and try to buy in uh more than if you did yeah no question that it's a it's a big uh benefit of working here and it's an appealing part of working here and so people do tend to stay longer um we've had we've had a couple owners leave recently which has been interesting one guy retired and it was a little earlier than we expected um another person moved out to baltimore actually to um because his wife got a job out there that they couldn't pass up and it's been really hard in fact we've been he's been talking about like well can we start a terra firma baltimore division and that's been like this whole other conversation which is like oh my gosh what does that look like and anyways uh it's a big part of employee retention you know if someone wants to leave of course like like uh leave but they they tend to not want to leave because it's a it's the the financial benefits are big and the the uh i think even more importantly the community benefits are are big and it becomes a big part of people's lives as any business owner knows um i'm gonna just ask you quickly uh someone has a question i haven't gotten to the questions yet but i did see a question that says what happens when someone leaves so marty as long as you mentioned that someone just recently left you have an owner uh how did how did that work from a payout standpoint they had given you a check for nine thousand dollars uh how did that work so the bylaws stipulate that we have five years to pay that 9 000 back um the precedent has been we've wanted to just get it out off of our books and in their hands right away so if we're in a situation where like we really needed that nine thousand dollars and that initial member capital um you know we could we could stretch that out over a longer period of time but we just assumed like hey let's get that back in their hands and uh and another way to kind of say that the ownership is is over there there's an internal capital account which is a whole other thing that took me a while to wrap my head around it now i'm super familiar with uh people can call me or email me with questions about that but that would get paid out at the scheduled amount and that would happen over a series of years into the future so they don't leave with their internal capital account money but rather would get that on the scheduled amount as all the other owners in that business here okay and i think the that's where we can maybe get into another uh you know another webinar on specifics but i think the most important thing to know about a worker cooperative is something we haven't mentioned is not only do you have equity not only do you you know feel like part of the business and all of that there's a huge financial benefit which is you are all sharing the profits in you know every worker cooperative is different but your bylaws uh talk about how you share profits in different ways whether it's a profit sharing check that year that everybody shares in it goes into a capital economy and there's some significant for a profitable worker cooperative there's a significant financial benefit to being an owner just like if it was you and your wife owning the business alone you're dividing that up right yeah exactly that's exactly right and gina on your end um from an esop standpoint um the differentiation of an esop and worker cooperative as an employee in your esop i receive a statement every year that tells me how many shares i receive how many shares i receive for working there um you get a valuation each year of what those shares are worth and i get a retirement account statement so unlike this kind of profit sharing model where we share it every year it's going into account where i i know what i have and when i leave i can i can turn that back in and i know this is new for you but you haven't done statements but um just throw that out there for an esa we'll get our first statement i think in july so those shares will be allocated the dollar value um for those shares and i think it should be anywhere between i mean it's a wide range right now and we'll go through the first time and see but anywhere between like 10 and 20 to 25 i think of an employee's salary will um will be the value invests 20 percent a year so unless they were over 65 we have some folks who are over 65 and they'll automatically best at 100 but otherwise it will vest in 20 increments until they're fully vested um and then i assume this is like a worker co-op when once an associate leaves the business or is terminated they are not allowed to retain ownership in the company and so we also according to our bylaws have five years to pay them out um just in case there's a there's a huge exodus that you know at some point we can save some of that money or you know um sparse it out over the years parse it out and i just i'll just share this number with you i i work with a trucking company in minnesota um that what used to be a client of mine and i now sit on the board of directors and we had a board meeting on monday we just were wondering they were started in 2013 and just as a number to throw out there since 2013 they have paid out to 145 participants now you know trucking industry has a little bit of turnover they've paid out 1.7 million dollars in distributions to those employees over those first 13 years i mean it's it's significant dollars and i'm sure marty if you went through your books and figured how much you had paid internally in capital accounts i mean when you share the wealth we really do share the wealth so that that's why i do this every day i just love to see such love to see that um and i think one last question before we get to the questions is how does it how do how does it change your employees lives how how do you think people that are living in a community that have employee ownership should think about businesses and why they would want them to be employee owned um is its wealth it's family what how would you how would you describe that marty um that's a good one um i mean i we were talking a lot about the money and we we've paid out a lot too we just updated it with with this year's payout we're now at since 2013 um we're at 3.8 million that we've paid out yeah so it's i mean it's a it's a huge amount of money and you know we're right now uh at 18 owners so um and we you know i i think it makes a big difference in in families lives um and i i think uh there is just something about being an owner that that makes a difference and gives people their their meaning to their work uh that's hard to i don't know hard to describe it's certainly not a dollar value but it is important i think um and i i believe in it i i think it's a great thing for for individuals and their families so i don't know how to describe it exactly other than most people don't most people don't it's a feeling you can't touch it or see it but you can feel it that's what that's what i tell people about employee ownership right um when i find the right words i'll i'll let you know or if you do let me know so yeah exactly that's great yeah gina you're all brett this is all brand new but i'm sure you're seeing some change in behavior some questions and i'm excited to see where this goes and talk to you over the next you know five ten years but any any last points before we get to questions yeah i think our biggest uh so we i mean we it's tremendous appreciation i mean we've had such great conversations internally and we've done a i think a pretty good job not as good as we can or will um and communicating it needs to be a constant communication it's definitely not a one and done to the team um particularly as for the fact that every month a new person rolls into the ownership portion and so we want to make sure that we continue those conversations our biggest challenge has been figuring out how to differentiate between ownership and management and by that i mean you might own shares don't make any more decisions and i hadn't anticipated that being a wrench no pun intended um and so we're working on the communication uh structure and value around that that concept you know you are an owner in this business we want you to act like one these are the benefits of being one but that doesn't mean that you're automatically a boss and so that's um you know you hopefully you will at some point you can do another conversation like this just for someone who manages hourly wage employees um and all of the learnings that we have and i'm sure we'll continue to have regarding that well thank you both we'll have about 15 13 minutes here to answer questions but courtney go ahead do we want to step in yeah your your comment gina is a really good segue to one of the questions that has come in and we've talked a lot about money and wealth we haven't talked as much about governance and control and so um there are some very key differences um in terms of the governance model and the control of workers in an esau versus a worker cooperative and then of course quite a bit of variation even within worker co-ops and esop so um can can you two touch a little bit at least on your experience and what what you've set up and what you've seen is the differences between those two models yeah i'll just say um off the bat we don't have a structure set up yet um because mark and i still own 70 of the business so our back office team our executive team if you will um they we have not changed our interaction with them meaning it is frequent and robust and they are just an incredible incredible leadership team um so that hasn't officially changed in any way we will have a board um that is created at some point um and we haven't exactly decided what the makeup of that board is going to be but that's probably going to happen when we sell the next charge and get closer to being a less than 50 owner great thanks i think the governance part is that piece that i couldn't find words for actually it's being able to have a say in the in the direction of the company um you know we went from having a benevolent dictator in before 2013 where you know i would engage with the employees but really ultimately was the manager um who always had the final say i'm still the president and the company manager um and so i'm not ousted yet but i have to get elected every year uh as to be the president we're trying to distinguish we have a we have a management committee that meets once a month um and there that's not the group that also runs the day-to-day operations of the company and that we're that's a real like ongoing discussion is like you know we have field carpenters that are the vice president of the company and they're out there pounding nails and and then they're you know how could they be expected to perform ongoing daily kind of minutiae office management tasks so like how that works is but at the same time there's a lot of people like hey we love that you know that the vice president who chairs these other committees is doing is doing work out in the field and really representing the field employees um so uh we have a board every owner is on the board um and like what's a board decision and what what we vote on uh is always an interesting one there are actually like a few bullet point ones that we hit is like hey these are really what the board votes on like incoming members the allocation amount at the end of the year like kind of these big buckets um and facilitating those meetings has been a real big learning process for me it was really hard especially at first to have to share these decisions that i felt like i'm not used to this i'm used to being the boss i don't really like sharing this it was so much better when i could just tell everybody what to do and now all of a sudden like sometimes decisions are being made that i'm like scared so i'm like this is so wrong honestly i'm like life goes on and it's great and it's probably fine and so i for me personally it has been an incredible journey and transformation and uh appreciation for the democratic process honestly is what it is so yeah and i'll say there are things called um democratic esops but there is a small portion of you that try to mimic some of the democratic member control that shows up in a worker cooperative but in esop's typically ownership is financial ownership it's not control whereas in a worker cooperative it's employee ownership and control um so um let's see here uh you know sometimes we get approached by employees who are interested in uh suggesting this model to their the the owner of the business that they work for either because they think that person might exit or they're just interested in what a more democratic workplace could look like um from your perspective you know how can employees or how should employees think about approaching company ownership to initiate this conversation i love this question but it kind of scares me because you never know you're not going to know as the owner where it's coming from right is it because you know so-and-so thinks i'm doing a terrible job or they think the company's not run well i would say if i were an employee and i were going to approach my employer you would need to really understand the culture of the company do you feel like you already have a um an open democratic culture and that doesn't mean that you don't have one boss but are you know our ideas appreciated are they solicited um and if you if you don't if you already don't feel like that culture exists i think that it's probably less likely that ownership or management is going to consider a worker co-op or an esop um and so for these the employee first i would say you know evaluate your culture do you feel like that already exists yeah i i would just agree with that 100 it's you got to have the culture there and in my case i actually went to the employees first and said you guys want to do this like this seems really awesome and it could be amazing um and their response was like if you're leaving marty we're not doing this like all right like you know what's right yeah what's that then you know it's right because they wanted you to stay you had the right culture exactly that's exactly right so yeah depends on the culture right yeah and so this leads into another question of how did you educate your employees on employee ownership how did you introduce the idea to employees i think um the you know what you said marty of like oh if you're going we're not sure we want you know often that that first conversation um can be a little scary for everyone and so could you each touch on how you approached that um opening up that conversation about ownership with your your teams um the first conversation that mark and i had is with the back the four key back office players at our company that that team has grown to five or six now but there were four at the time and we basically gave them letters saying you know welcome to the ownership team this is what we're planning on doing we didn't ask them in advance because we were afraid if we let the cat out of the bag and then it didn't work like if we couldn't get the loan um or whatever reason we thought that it would be detrimental to the culture so we told them first and then we brought all of the store managers um and assistant managers together and walked them through the process made it a very big party you'll see we took great photos we had prizes we had t-shirts and buttons like we made it very festive um with the 401k company there to really answer the nitty-gritty because at the time i don't think mark and i were well enough first to be able to stand up in front of the audience and give the details and then we rolled it out to the entire company with um back to backed up documentation that we you know have in our handbook and we have in our payroll program so everyone can access it great thank you how about you marty i rolled it out with a couple of uh three and three employees who had been there almost from day one with me and said hey what do you guys think of this here's kind of what i've learned about it here's what i don't know do you guys i guess at all interested should we research it more um and then we just kind of kept digging a little deeper scratching a little more calling more folks bringing in some consultants and then eventually we brought it to i think the whole company and said hey this has got a lot of traction um let's start talking about what bylaws might look like and it was a couple year process for us yeah okay great i'm gonna borrow that pie idea that was great yeah i'm going to do that for the next incoming owner i'd love that that's so cool thanks i just want to acknowledge i know there are several questions in the q and a box about grocery co-ops and worker co-ops within grocery co-ops that's a super complicated conversation and um none of our speakers as far as i know are grocery co-op experts so i just want to acknowledge them i'm not intentional i am intentionally ignoring them happy to have that conversation after the webinar um but i think we could go down and go down a rabbit hole um pretty easily there so um let's see here what other courtney courtney i see i see two questions that i can answer really quickly one is uh one is a comment that says employee ownership is not a magic bullet for saving a business that is not profitable and that we need to say that employee ownership will not fix it employee ownership on its own will not take a good business and make it better without a lot of work so it is not a silver bullet and i think the most important thing to know is yes it does have to be a profitable business it has to support the cash flow to pay someone back uh and then the second question someone said was to learn more about acquisitions um i think we're really starting to talk more specifically in the esop world about growing employee ownership through acquisitions and so businesses like marty's don't just have to shut down if they can't get a buy if they can't get a personal guaranteed loan for their managers to buy it when marty leaves we're trying the best through our network of state centers we're creating a list of businesses who are employee owned would be glad i could see a construction company marty saying you know what we'd love to take in a great company like yours and do a remodel division and put it inside of a construction company so it's a new concept in my mind a new concept that's really being talked about a lot um because there are some small businesses that don't have dem you know don't have a democratic workplace and couldn't fit into an esop so yeah or merge with another worker cooperative too i've never seen that either but i think we're going to see more and more mergers and acquisitions inside of the employee ownership community to make that happen yeah i want to thank nancy for a comment i was going to read that at the end just we've talked about all the positives here but it's not a silver bullet um you know again like steve said uh turning something into an employee-owned company doesn't fix a company that's losing money um doesn't plug those holes so um we have just a couple more minutes so marty and gina if each of you could just reflect on um you know what's one thing you think folks should know about your experience converting or starting the process of converting your business to an employee-owned business um one maybe one of the highlights one of the positive things and one of the challenges um folks should be aware of um oh gosh i i'm i'm by nature a very curious person and i'm also very um i was going to say tolerant and that's a dumb word to use you have you have you have to be curious because there's so much you don't know and i mean i really had to pretend like i was starting from ground zero of any kind of business ownership valuation knowledge and i did you also i also have to be very cognizant of um my feelings when it comes to talking about you know when you've been the ceo of a business for 19 years and all of a sudden you're supposed to start sharing it it didn't matter how open i was i mean i think we have a fantastic culture but there is a nuanced switch when i now say i am the ceo and co-owner or i mean i've always called my teammates teammates i've never called them employees but there are a lot of things like that that if you are not already doing that in your culture you have to start thinking about because it really impacts how you go to market with this new concept and the benefits you can get from it from a pr perspective and employee retention and being sincere with your intentions i think is is the big is the big thing and i i think that that's probably one of my strengths but even so it was it's it's been a struggle and it will continue to be i think yeah and i hope that answers your question for you sure it's great thank you marty any final word you know i think if you're an entrepreneur and you have a business and you're you're going to be a risk taker that's what we are as the definition like you're gonna jump off the cliff and not know how far you're gonna go and that's just what we do and we love it and it's a sickness and a great thing that we do and i think going into employee ownership is no different like you're just gonna jump into something and you'll be like i think it's going to work i think my gut says is the right way to go that's the great thing of it it's i recommend it um the hard part is like i i think it's when you're used to really being in charge in all aspects and so you gotta share it like that's talking about stretching your uh growth there that that's it so yeah that's it great well thank you so much we're at time um steve marty gina really appreciate your participation gina and marty thank you so much for telling your stories um this is often the way that people start their journeys hearing someone else's stories those stories are really powerful i want to also acknowledge that there are a lot of questions about the specifics the details um and we were really focused on the story here so if you have um if you feel like your question wasn't answered please don't hesitate to reach out to steve to reach out to me um i'm probably to gina marty too um because we know that you know the devil's in the details and if you're interested in continuing this conversation we'd have to be happy to be thinking partners with you so again thank you um and thanks for coming to the webinar and enjoy the rest of your day everyone be well thank you thank you i