Why Boutique Consultancies are Ideal for Employee Ownership Transitions

Thank you very much for joining us for why boutique consultancies are ideal for employee ownership. Um we're going to do a quick introduction here. I'll share a little bit about myself and project equity. I'll let Mary share about herself and strategic inflection advisory and then we're going to talk to you a little bit about uh why you know why boutique consultancies work for employee ownership. Here's our agenda. We're going to do building a business that works without you and the five pillars of profit. Mary will take you through that. I'm going to talk you through succession uh options through employee ownership and the forms of employee ownership and we'll wrap up with some Q&A if you guys have questions. My name is Megan Gordon. I'm with Project Equity. Project Equity is a nationwide nonprofit. We exist to advance awareness of employee ownership across the United States. Um we provide actual technical assistance for transition work. We work with capital partners. Um, we actually have our own capital program. So, in a lot of cases, we can actually help fund transitions for businesses that are looking to become employeeowned. We are kind of an innovation lab. We work across all forms of employee ownership. We work with ESOPS, employee ownership trusts, and worker cooperatives. So, we're form agnostic. We're very much interested in advancing employee ownership at large uh across the United States, creating more worker owners. And we also work to advise business adviserss and bring people who provide the support and uh and advising to the businesses to uh make them aware of employee ownership as well. We've been around since 2014. I've been with project equity for uh just under three years and my role is uh one-to-one business advising. So I'm on our business engagement team. I spend most of my day talking to small business owners about whether employee ownership could work for them. So that's who we are. That's what we do. I would love to Mary welcome you to introduce yourself and tell us about your practice. >> Wonderful. Thanks so much Megan. So I'm Mary Dumbraki and I'm the founder of Strategic Inflection Advisory. As I said I'm based in Atlanta. I work with the founders of professional service firms to create scalable and ultimately salailable assets um whenever it is that they may choose to exit. I started my career in corporate. I was working with companies like Time Inc. and Comi Nast when people still read actual physical magazines in the from a newsstand. Um I pivoted to a more entrepreneurial environment and for about the last 20 years I've been working with professional service provider firms to grow their businesses. got just a few examples of recent wins that I have had um with a media startup where we increased revenue and profits with a business training and consulting firm where we made it onto the Inc. 5000 list of fastest growing companies and recently with an executive coaching firm where we reversed a turnaround situation and actually brought in about $1.5 million of new business in about a year. So why do I do what I do? um only 20 to 30% of businesses listed for sale actually sell. And the reason that is is that typically what happens is there's some sort of life event that triggers looking into a sale. Um could be, you know, a health issue, a family issue, whatever it is. Then what the owner finds out is that the valuation they were hoping to receive or would like to need to receive um is not what they were expecting and there isn't enough time to put that structure in place and so that window of opportunity closes and they either sell for a much lower valuation than they wanted or needed or they just close shop which to me is just the saddest thing that can happen um after you put in so much time and effort in growing your business. And I think that boutique consultancies are actually ideal for transferability. You know, you typically have built-in successors with the bench that you've got in place. The IP of your firm is actually living within the team. Your culture is what your clients want to buy from. And those ongoing relationships that you have with clients produce such a value to your firm. So there's a myth out there that consultancies can't be transferred because they're too tied to the founder. The revenue is tied to the founder and the client relationships they think will follow the individual, not the firm. But the reality is that these are both symptoms of a very fixable problem. And in terms of the revenue side of it, you know, when you hit typically in consultancies, it's around when you're at $750 to a million dollar is in revenue that you need to look at bringing in additional support in terms of the business development and sales. And so that means having systems in place that are not tied to the founder. So it's systems in terms of delivery, systems in terms of business development, systems in terms of sales, and then in terms of client relationships, you you shift from introducing clients to a team instead of to a person or a name or the founder. And when we're looking at firms, the five areas that buyers evaluate are the strategic positioning. You know, can you clearly articulate your place in the market? your revenue engine bringing in consistent and predictable revenue clarity on your financials, the operational systems that are defined and then the exit readiness of the founder and that can include a psychological readiness of being ready to hand it off. The two areas that I really work in are the strategic positioning and the revenue engine. You know, obviously if you don't have revenue, you don't have a business. So today we're really going to focus on the revenue engine um out of out of the five and the framework that accelerates revenue and profit is what I call the five pill pillars of profit. And this is what I actually work through this framework with my clients. We're looking at the strategic positioning and the offer clarity, lead generation, conversion and revenue engine, value pricing and engagement design, and then the profit margins and financial clarity. because of the time constraints that we have today. We're just going to focus on the middle three. Lead gen, revenue, value, pricing, and engagement. So, lead generation is probably the biggest issue that everyone has. You know, you don't meet a business owner that says like, "I have all the leads I need. I don't need any more leads." So, what we're looking to do is create a system that brings consistently brings in qualified prospects. The reason that most lead generation fails is because there's what my marketing colleagues would call random acts of marketing where you're just trying a bunch of different things, but there's no strategy behind it. And each thing that you're trying, maybe you're not working on it long enough to see if it actually works. And what that produces is a very high volume of leads, but not a high quality of leads. And that means that you really can't predict your next quarter or this year's revenue and the pipeline. The reality is that only 3% of the market is buying at any given time. And there's another 7% that will be buying soon. And then you have 90% that are somewhere in a ready now, ready later, ready never situation or ready soon I should say. So if you're not building in some sort of a nurture mechanism that keeps you top of mind when that 90% moves into one of the moves into the top 10% you want to make sure that you're in the consideration set. So it's creating some sort of an ongoing nurture to the leads that you've got in your pipeline so that they are that you are staying top of mind when they are ready to buy because most people are not ready to buy when you encounter them. So in looking at creating lead generation that works, the first thing is really important is to look for one to many opportunities. So this is an example of a one to many opportunity where we're reaching a lot of people at one time. That could also be speaking at a conference. That can be convening your own events. And um but it's looking for where do your decision makers convene and how can you use those platforms to get in front of them. And then further having a strategic outreach that demonstrates that you understand the problems that they're dealing with and that you are a solutions provider to those problems and reaching out to them in a way that demonstrates that. And this then starts to give you visibility into your pipeline of what your revenue potential is based on who's in who's in that pipeline. But you can have all the quality leads in the world. Um but you have to learn how to convert them into clients. And that's what we're going to talk about next. So this is your conversion and revenue engine. Turning your prospects into long-term clients. And where conversion typically breaks down is that first there's not a systematic sales process. You know, we're never taught throughout our careers and I, you know, got my MBA from Stern and did we ever talk about how to have persuasive sales conversations even one time? No. So, most people don't really understand how to lead a prospect in a conversation to a decision. Or sometimes, you know, somebody may call and say, "Hey, can you send me some information or send me a proposal?" Never send a proposal unless that person is willing to have a discovery conversation with you. So, you know, making sure that that you have an actual process that you lead people through that leads them to make a decision whether that decision is yes or no. And the the second part where the breakdown occurs is if it's just in the founder dependent relationship. So, if people only want to talk to the founder in order to close a sale, that's a natural bottleneck that's going to be created. And then the third one which is really critical and we'll spend a lot of time on is setting up um engagements from the beginning to make them long-term. So rather than looking at one-time projects, you're looking at creating ongoing partnerships. It's very difficult if you set something up from the beginning as a oneandone to get out of that and expand it later. So what this means is to correct this is to is to really master a consultative approach to sales conversations and understand what that means to drive somebody to to a decision and further having systems that support consistent follow-through. So, you need a good CRM that can tell you where all of your prospects are in their decision-making process and how likely are they to close and be tracking that number of what your what your conversions are from qualified prospect to a closed sale. And then third is designing these for long-term client relationships. This has to happen from the beginning. Two things really have to happen inside. Well, three things I'll say really have to happen inside your sales conversations for you to have an understanding of whether this will close or not. One is their sense of urgency to solve a problem. Another is their their time frame um the the um the budget that they have for solving the problem. So, how much are they willing to invest into doing that? And then also looking at this as a very long-term situation and even seeding in those first conversations, you know, most of our client engagements last for 24 months. Um, so that you're you're putting that out there right away that this is long-term. And then that ties right into the value pricing and the engagement design. So we want to move away from being compensated for time to being compensated for transformation. the pricing traps come up are to do hourly pricing or day rate pricing. That's going to cap your revenue. You need to be able to tie it back to outcomes. And when you're when you're pricing it that way, you're leaving these expansion revenue opportunities on the table. So looking at, you know, when when you go into work with someone, there's probably multiple problems that you can solve and you're going to start somewhere, but you want to then be able to expand from there. And with that ties into not cross-selling or upselling once you're inside of a client engagement. And again, it's really hard to do that if you haven't set up from the beginning that this is going to be long-term. So, how do we address that? Number one, without question, is really understanding and pricing based on the value of the transformation you're helping that client achieve. And specifically that gets to how is this increasing revenue or how is this decreasing costs. I mean those are really the two levers. And even I work with a lot of people in the people space and they say well how can I talk about ROI? Well one big way to talk about ROI is for instance are employees staying because if a company has a retention issue and you help them solve the retention issue that's a big cost to them. Retention is a massive cost. So that's just one example of that. And then looking at offerings that have natural expansion opportunities. People oftentimes will start with a with an initial engagement. And sometimes, you know, sometimes they need to realize some of that co cost reduction or revenue increase in order to pay to continue to work with you. And that's fine. But you lay that out from the beginning that, hey, this is how we're going to work together. We're going to tackle this problem. We're going to solve that problem. and then we're going to move on to phase two. um and and having that having that from the very beginning. You know, even a lot of people start with workshops, for instance, as a solution or a discovery phase as as an initial engagement and then you just continue to expand on that because when you are a firm that has long-term client relationships, you're able to have higher revenues and the higher revenues are going to help in increasing the valuation for for the business. So um you know long-term client relationships rather than than one-time projects. So those are the three pieces that um really help drive businesses towards scalability which then helps them drive toward uh trans transference when you get to the point that that you want to do that. And so the question you ask yourself is where where are you on these three pillars? So I offer a business scalability assessment and this is my initial step that I work with my clients on when we begin our engagements and I would like to offer this to everybody on the call today. Um this is a complimentary u scalability assessment in four parts. Over the course of an hour we go through a series of questions across six domains. I give you a topline view of the results shortly after the session. So you'll be able to see where you stand and where your highle opportunities are. You receive a detailed written report that shows you your score in each domain and identifies the gaps and what's working well, what needs to be fixed. And then you get a custom 12 to 18month strategic roadmap, a specific plan for your business. And while that's typically a 750 value, I'm waving that for everyone here because you made the commitment to be here. Um, and I'll just say a lot of founders don't realize that they could be building a salailable asset while they're building their revenue. And I shared in the beginning that many owners don't seek to um don't get the valuation that they're looking for when they're ready to exit. But this really allows you to put those pieces in place before you're ready so that when you are ready, you have options. And with that, I'll hand it off to Megan. >> Mary, I really appreciate the framing that you provided here. I really wish people maybe talked to somebody like you before they got to me. Um because a lot of what you're talking about, sometimes we call it key person risk, um associated with an individual owner, an individual founder of a company. Um, if you start thinking along the lines that Mary was describing early and, you know, spreading out that responsibility pool, spreading out that knowledge base, getting more people involved in understanding how the business runs, you're just setting yourself up for a better situation when you're ready to exit the business in whatever way you need to exit it. Um, so I'm going to talk to you a little bit about employee ownership. And if you guys have ever met me, that's not a surprising topic. That's what seems to be all I talk about. But um we're going to talk about the employee ownership succession option here. So, as Mary pointed out, not every business that wants to go out onto the market, uh actually finds a buyer. Uh I think she said between 20 and 30% uh the stats that we've looked at were somewhere in the neighborhood of about 20% of small businesses that are put to market sell. Um, and then layering on to that only about 30% of small businesses that are uh are transferring within families. So, I I run into a lot of business owners who think all along, oh, my kids are going to take over my business, and that just isn't always the case. And I I like to say, you're a victim of your own success. You went out, you started this small business, you created opportunity for your kids. Maybe they went off and they went to law school or they became a doctor or they did something else. For whatever reason, they're not wanting to take on that family business and you don't want that legacy to disappear. Um, and right now we we're facing what we call the silver tsunami. Uh, is we we have over half of business owners in the United States are 55 or older. So, we've got this kind of wave of folks who are going to be ready to pass their businesses on. But if you put that 30% and that 20% together, you're seeing there's about 50% of small businesses that just don't really have a good strategy in place right now. So, what are your options? You're a small business owner. You want to exit your business. Um, you could sell to your family members. You could have your business acquired by an outside buyer. You could close down your operations, which is obviously the worst case scenario. Or you could consider employee ownership. And when I talk to small business owners, there's sort of four main things that I hear them telling me that are important to them. They want to preserve their legacy. They've built this thing. They want this thing to outlast them and they want to be sure that all of the work that they put in gets retained and honored. They also need to make money, right? For a lot of small business owners, this is your retirement. This is how you're going to fund the rest of your life. If it's spending time with your grandkids or jetting off to Europe, whatever you're planning to do, you need to get a fair market value out of it. Maybe you're trying to get some tax benefits out of it. That's always nice. Uh if you can incentivize in that way. And a lot of business owners I talked to were really concerned about what'll happen to their employees. I I hear it time and time again from people who say, "Look, I couldn't have done this without the people that helped me build this." And so they they're trying to weigh these four different, you know, uh, values and figure out how do I get how do I get the best possible option? And so I would I would argue and submit to you here that the the way to get all all of those things met at the same time is the employee ownership option. And we're going to talk a little bit more about what that means and what that looks like. So, broadly speaking, uh, when we talk about employee ownership, we're talking about a structure that includes at a minimum a 30% stake that's held by the employees in a broad-based fashion. Um, and so if you're hearing that and you're thinking, wait, does that mean I can do a partial sale? I don't have to necessarily transfer 100% of my business. Yes, that is what that means. So we do want to see at a minimum 30%, we don't find it particularly incentivizing for employees to hold less than that 30% stake. So sometimes if you hear of, oh, this company has 10% employee ownership, something like that, that's great. We're not going to knock it. We want any employee ownership that we can see, but really when you get to 30% and above is where we start to see that really making a meaningful difference for the worker owners. And that's why we hit at that number. And we'll talk a little bit down the line here about these three forms that you see here, the worker co-ops, the employee ownership trusts, and the ESOPs. So what does it mean to be an owner? It means that you have a voice, some some voice, some say in how the business is run. So that can be a voice in decision-making. It might be a role in governance. It might look like sitting on a board. It might just look like voting for who sits on the board. Um, but you have some say in how the business is being run. and you benefit from that. So you have maybe some say in how wealth building is created in your company. Maybe you're influencing what the benefits are, what kind of health benefits you have. So being an owner means having having a voice and also uh participating in profit sharing. So how does it benefit the owner? First off, if you're the if you're a business owner on this call and you're like, well, what what's in this for me? The first thing that you want to understand is that you're going to be able to achieve a fair market price and you already have a ready buyer at hand. So, you know, going back to those stats around only 20% of business is selling, only 30% transitioning within families. A lot of people overlook their built-in buyer, and the built-in buyer is your current worker owners. So, you can achieve a fair market price if you have that buyer already built in. Um, you can have a lot of say in how you exit. I talked to a lot of business owners who say, you know, I'm really tired of doing this 50 hours, 60 hours a week. I'm not ready to go 100%. I would love if I could draw back and do like 20%. Or there are these few key strategic things that I do that I'd like to retain and then I would really like to step back from some other aspect of operations. That's usually not an option when you're certainly not an option when you're selling to an outside buyer. May or may not be an option if you're doing it within a family. Um, but an employee ownership transition allows you that flexibility. So, an example I love to use is uh there's a podcasting uh network in uh Los Angeles. They're called Maximum Fun. They're great. If you don't already know them, check them out. They have wonderful content. Um, the founder, Jesse Thorne, started the podcast because he wanted to be a podcaster. He had an idea for a podcast and he thought it would be great and it would be a lot of fun. And he built this network and then over time he acquired more talent and more people signed up and they wanted to be part of the they wanted to be part of his network. And then he got to a point where he was like, you know, I didn't get into this because I wanted to run a podcasting network. I got into this because I wanted to podcast and that was when employee ownership became the the solution for him. So Jesse transitioned Max Fun into a worker co-op. Uh and he still works there. He's a podcaster. He doesn't run it. There's a board. The board does a great job. I visited them last time I was in LA. They're just moving into a new space. They're doing wonderful work. Um, but he was able to just say, "Hey, I I want to get back to what I wanted to do." That's an extreme example. A lot of the business owners I work with are actually exiting the business, but it it highlights the flexibility that employee ownership allows that a lot of other structures don't. Um, and then finally, it's going to let you preserve the legacy, the culture, the people, and the other assets. It's also going to secure your your business in your community, which also helped you to grow. So, you know, if you're if you're a business owner, I'm sure there are certain things that your business provides to the community that you live in that nobody else really replicates in the way that you do. And so, we get to cement that, secure that legacy. Um, there's a lot of stats on here. Like I said, we're going to share this out afterwards. But in general, um employee ownership is also going to benefit the the workers and the business. So, you're going to see higher income for workers, you're going to see longer job tenure, and you're going to see a higher household net worth. And that all makes sense, right? If you're the worker owner and you're entitled to profit sharing, you're getting profit from the business that you're helping to grow, you're incentivized to grow the business, right? So, it's going to you're working harder because you're getting more benefit out of it directly. you're going to want to stay there longer because you like what you're doing and you're effectively, you know, sort of working as your own boss or as part of your own boss. Um, so that's where you're also going to see those higher profit margins. You're going to see faster growth in sales and employment. Um, and during the pandemic, we saw that employee owned businesses were much more likely to retain their staff. Um, they maintained hours and salaries at higher rates and they maintained safer work environments. So more likely to provide PPE, more likely to ensure so social distancing was happening. It was really just uh you know these are strong resilient companies. So transitioning into employee ownership is not only a good option for the business owner, it's also beneficial for the business long term and beneficial for the employees in the business. That all sounds great, Megan. I love it. What are you talking about? What actually does employee ownership mean? So when we talk about employee ownership, we're talking about three main forms of employee ownership. We're talking about ESOPs, uh, which are employee stock ownership plans. We're talking about worker cooperatives, and we're talking about employee ownership trusts. And I'm going to dig deeper into each of those, but I would say probably the order in which I described I I laid those out is probably the uh order in which people have heard of these. So when I when I say in a room full of uh business adviserss I say who here knows about employee ownership a lot of people will say I know what an ESOP is a few people will say I know what a co-op is very few people will say I know what an EOT is but that's changing and I'm really excited that that's changing um so let's dig in a little deeper so an ESOP is effectively a retirement plan so it's like a 401k um but that stock is primarily in the stock of the company um that makes it a way to purchase the stock of the existing shareholders but again as we discussed fair market value and built-in friendly buyer buyer that's happy to come to the table with you. Um ESOPs are the most tax advantaged form of employee ownership. So there are a couple of different levels of tax saving. There's a 1042 deferral available. Um, there's also the ability to defer taxation on the stock that they receive. So, ESOPs, one of the older forms of employee ownership here in the United States. Um, and uh, these are really great for slightly larger companies. So, we generally want to see at a minimum maybe 35, maybe 40 employees in uh, in a company that we're going to transition into an ESOB. Um, if you're smaller than that, don't worry. We have some other options for you. Um, but that's generally where we we like to see the ESOPS kicking off. All right. So, worker co-ops. So, a worker co-op is a basically a highly democratic structure of employee ownership. So, the business is both owned and governed by the worker owners. uh we generally like to see 100% employee ownership. Um we want to see really high worker uh engagement in this. Anytime you uh establish a worker co-op, you are going to establish a board of directors. And our recommendation is having a majority of worker owners on that uh board of directors. And in a worker co-op, profit sharing is uh through what a a method called patronage. It's usually based on hours worked. It could be based on a few other things, but um so this is going to be a form where we really want to see. So you see it's it's called the sort of one vote, one share model. So by being a member of a worker cooperative, you're entitled to that voice and governance. what through through your ability to vote for who sits on the board and potentially be a person who sits on the board and you're also entitled to that profit sharing. Um it's very flexible form of employee ownership. Most commonly we see this as an LLC or a cooperative co-op, although that doesn't have to be, but those are the usual ones. There are some tax benefits. It's not quite as tax advantaged as an ESOP, but it still has some tax uh benefits available. Um this is a very inexpensive form. This is the least expensive form of employee ownership to set up. So, it's low cost to set up and it's also low cost in order to maintain it. Um, and there is a buyin amount. So, a worker co-op is an optin model of employee ownership. It's not an everybody in model. So, when you form a worker cooperative, you need to make that access to becoming a member of the co cooperative available to the to the workers, but it's not automatic. So, uh, I like to use just for round numbers, call it maybe a $1,000 buyin. It's a one-time buyin. You pay that. It's in order to participate in the worker cooperative. By giving that money in, you're now entitled to your vote and you're entitled to your patronage share, your profit sharing. Um, that money should not be seen as uh purchasing the company from the um from the actual existing owner. It's not operating capital. It basically is skin in the game. It's money. You take it, you put it, the company puts it, and I say, think about it like a piggy bank. You put it in there because in the event that anyone ever decides to leave the cooperative, you need to give them their thousand dollars back. It's not with interest. It's not gaining anything. It's just sort of this is my my paytoplay. Um, worker cooperatives can work for uh basically any size of business excluding really micro micro businesses, but 10 or more employees. If you've got that number, this is a great option for you. So, uh, don't need to have as many people as you would have to have an ESOP. It's, uh, it's a really accessible form of employee ownership. All right. So, this is kind of the new kid on the block, the EOT, the employee ownership trust. Um, this is actually one of the most common forms of employee ownership that we see in places like the UK. Um, it is a newer player to the game here in the United States, but it's gaining a lot of popularity. Um, so an EOT is a custom form of a PPT, a perpetual purpose trust. Um, and if you don't think you know what a PPT is, I imagine most of you have heard of Patagonia Clothing. Um, Patagonia Clothing is a PPT. So for them, their P their purpose is uh environmental stewardship. So profits from Patagonia clothing are going towards that. Um, in an EOT, the profits are going to be for the benefit of the employees. So the part of the P part of the purpose there becomes the employees. They also al also often have a mission component. It's not at all uncommon to see EOTS where in addition to obviously having a profit sharing mechanism that's getting you know money down to the employees they also have some other missiondriven alignment with them. Doesn't have to be but it can be. Um the trust is uh so the in this form the business becomes a trust and the beneficiaries of the trust become the employees. The trust is to protect the purpose of this business into the future. These are generally designed to be very difficult to sell. It's not impossible. You can set them up with some sort of sale criteria, but in general if you're moving into an EOT, you're really kind of locking in the legacy. you're planning on this company being around in the form that it's in for a long time. Um, it's going to be operated and managed by the employees. Um, the employees are going to get a share of the profits. There's going to be a profit sharing formula. That's always the case. There's also a profit sharing formula in a co-op or in an ESOP. Um, but they're going to get that profit sharing for the duration of their employment. Um, so I discussed how a worker co-op is an optin model. An EOT is an everybody in model. So if you transition your business into an EOT, if you sell into the trust, all of the employees become beneficiaries of the trust. Um but similar to so there's no they don't need to, you know, they don't pay anything in they don't pay anything to leave. So as long as they're an employee of the company, they're going to be entitled to that profit sharing. We do like them to have some representation on the governing bodies and vote on the key issues that define what's called the trust agreement which is kind of the overarching mechanism making the EOT work. Um it's not inherently as builtin democratic one vote one share the way that a worker co-op is but a lot of the sort of a lot of the things that you get in a co-op you can model into an EOT if that's your desire. So there's always going to be some component of worker voice, but it's not as inherently built in as it is in a worker co-op. Um, similar to a co-op, EOTS, we can see these for as few as 10 employees. Um, 10 or more employees. So those are kind of the three main forms of employee ownership. And at Project Equity, we are really form agnostic. Uh we our mission writ large is to create more worker owners broadly and so whichever form of employee ownership is the right fit and size for your particular business is the form that we're going to recommend you move into. How do we do our work? What does project equity do? So I mentioned up top I start uh I I spend my day primarily talking to small business owners and that's what we call our exploration phase. So it's free. I like to say it's always free to talk to me. If you're talking to me, there's no bill coming. It's just let's let's get on the phone. Let's chat it out. Um, and what I'm going to help you do is figure out, hey, is this possible? Is this, you know, we're going to talk about how big your company is. We're going to talk about your management. I know Mary talked a lot about like building out understanding your structures and your, you know, making sure your leads are coming in and you're setting the right a lot of that comes down to management and making sure that you have a strong bench of management people that can help you build your business, grow your business. So, I'm going to talk to you about that. Who's currently in your management bench? Are there any missing pieces? Um, we're going to talk a little bit about your profitability. So, we do not ask your employees to come up with a check to buy you out of your business. Effectively, what we do is we help your business take out a loan to buy itself. So, what that means is I'm going to be assessing kind of up top, are you in financially relatively good shape? And this is where I also say this a lot of times. I love that people would talk to somebody like Mary before they come to me because you want to you want to make sure that your business is really running profitably because we can't finance debt onto a business that's not turning a profit. Um so during the exploration stage, I'll talk to you about your goals. I'll talk to you about what you're hoping to accomplish. I'll talk to you about the three forms of employee ownership. We'll kind of start to figure out which form might be the right form for you. Um we'll take a look at your highle financials. We'll take a look at your P&Ls. take a look at your balance sheet. Just make sure that you're kind of running roughly at a profit. Um because we don't want to bring you into a transition or even into the exploration of a transition if we know already, hey, you're going to need to go short some things up first. You know, so sometimes the conversations I have are like, hey, things are things are looking great. Maybe you've but you've had a a rough year or two here or there. Why don't you go talk to somebody like Mary or why don't you go work on some of these other things for a little bit? Come back to me. Um, you know, you should be thinking about planning for your exit 10 years before you're ready to exit. Um, and so it's never too early to talk to somebody like me or to talk to somebody like Mary about these things because the the more the more runway you give yourself, the better. But that's what we do in the exploration phase. If everything's looking great um during exploration, then we bring you into our feasibility study. Feasibility is where we're really going to get deep under the hood. So feasibility study, it takes 3 to four months. Um it's going to be a deep dive into your financials. We're going to do debt capacity analysis. We're going to do future profitability modeling. We're going to take a look again deeply at that management bench. Figure out what your timeline is. If you're exiting, are there certain things that only you know how to do? I sometimes run into people who are like, "Hey, I do all the accounting and nobody else here does the accounting." Well, now we need to figure out, is there someone there that can do the accounting? There's someone we can train up, someone we can get, you know, on pace to do that, or do we need to bring in a CPA or an accountant or do we need a fractional CFO? All of that is going to factor into uh what the what the ongoing, you know, cost to run this business is going to be. If you haven't been paying yourself a salary, maybe we need to figure out because if someone's replacing you, maybe they need a salary. That kind of stuff. We're also going to get really deep into which form of employee ownership is the right form for you. So, some people come to me and they already know. They're like, I'm I want to make a worker cooperative. I know I want to be a worker cooperative. That's great. Some people come and they're like, I I broadly think I'd like to leave this thing to my employees, but I have no idea what the right form is. And so we can help you explore that. At the end of the feasibility study, you're going to get back a report from our team. It's going to include all of our homework. So here's all of the work we did. Here's our debt. Here's the debt capacity analysis, the free cash flow analysis, all of the work that we did to figure out what we think the amount the business can bear in terms of servicing a debt so that we can actually generate a sale price. You're also going to get at that point two or maybe three potential sale prices. So this is going to give you the sense of okay if we finance it in this form and we we do it over seven years we think we can get to this number and if we maybe play with the numbers a little bit you do a little bit more seller financing in this scenario we to draw it out a little bit longer over time we think we can get to this other sale price. But that's you're going to get sort of those those benchmarks and we're going to have an idea of which form of employee ownership is the right form for you to move forward with. We'll hand that back to the owner. How much your employees know or don't know about what's going on at this stage is really up to you. So, we have some owners who are like, "Hey, I really need to see what those sale price numbers look like before I can even think about talking to my employees about this because if those numbers aren't aligned, I don't want to I don't want to move forward." And that's fine. We understand sometimes that's when you go and work with Mary, get those numbers higher to where you want them to be. Um, but if you're if everything looks good, you're like, "Yeah, this is kind of where I thought it was going to be." At that point, we'll also do some employee engagement for you. And so we'll do some education sessions. We'll educate your employees about what employee ownership is and what it means. Um, and we'll do some anonymous survey. We want to figure out, we want them to tell us in their own words without feeling pressured at all whether they want to be part of running this company. Now, you don't need a 100% of your employees to be 100% on board and all super excited about worker ownership. We find that that excitement builds over time once the the mechanism is actually in place. Profit sharing is a pretty strong motivator for people, but we do need a few people at the beginning to form a key cohort that can help lead that business forward and can help lead the transition process with us because that's a team effort. So that's feasibility. Transition would be the next stage. Completing feasibility, some people complete the feasibility study, they go, "That's great to know." They take it, they put it on a shelf and they wait 2 years, 3 years, maybe more. They just wanted to have the road map. They wanted to understand what was possible, but they're not ready to make the switch yet. That's fine. If you're ready to go, we can move you then into the transition process. So transition is going to take anywhere on the sort of hyper rocket speed end, maybe six months. On the sort of slowboat, maybe 12 months. I'd say eight months is probably around the the min minimum or the median. So I'd say think about from exploration to transition. If you're going straight through without any detours at all, probably about a year, might be a little bit less, might be a little bit more. Um transition is where the rubber meets the road. This is where we are going to get the financing secured. We are going to establish your bylaws, establish your governance, establish your mission. If you're building an EOT, we're going to establish the trust stewardship committee and enable your trust enforcer and we're going to bring all of those pieces together. If you're a worker co-op, we're going to establish your board. If we've identified that the ESOP is the right path for you, we are going to very kindly and warmly hand you off to another provider. Uh, Project Equity does not do transition work for ESOPs. Um, not because we don't think they're great, but because it's a really well- served field. Um and we felt that work co-ops and EOTS are the area where we really can help because there's less technical assistance in those spaces. So um but we're going to so we we will have locked in our sale price. We're going to lock in the financing. Project Equity has our own capital fund. We also work with CDFIS and other missiondriven um uh capital providers to build the appropriate capital stack to get to the sale price that we want to get to. Um, we're going to work with we're going to establish what we call a transition team, which is going to be some of those key co employees that we talked about that are really excited about uh helping to shape the future of this company in in connection in concert with the the selling owner and the transition team. Project equity quarterbacks that deal and works to get everybody aligned so that all of the different pieces of how the business is going to run moving forward are established. We'll bring that financing, get it all underwritten and settled. We'll get the deal signed. We'll cross the eyes. We'll dot the tees. The owner will get that initial liquidity event. Um, so up to 70% of this the agreed upon sale price of the business can be cashed out at the time the sale is concluded. There is going to be some component of a seller's note that'll exist over time and be serviced in in tandem with any additional senior or mezzanine debt that we've established in the capital stack. Um, for some folks that's the end. Done. Yay. Off into the sunset. For those that are interested, we have one further option to engage with us. That's what we call our Thrive program. We highly recommend it. This is where we would stay engaged with the business for another one or two years um to allow them to grow into their best workerowned selves. So, we're not going to uh advise on operationally how the business functions. We are not experts in manufacturing or retail trade or anything like that, but we're experts in employee ownership. So, we're going to stay embedded and engage and and help uh the worker owners uh you know establish best practices as an employee owned company. All right. So, I just wanted to quickly shout this out and we're going to get to Q&A here in a few minutes. Um, but I talked a lot I talked primarily to business owners as business owners, but I know that some of the folks on this call maybe aren't business owners. I think some of you might be business adviserss or folks that are other in engaging in business in other ways. So, I just wanted to take a minute to shout out our EO advantage. So these are learning products that we have est we've uh developed here inhouse um that can offer certification in uh EOTS, co-ops, ESOPs, financing transitions. These are for CPAs, certified financial planners, business advisors, attorneys, uh wealth planners. We actually have some modules now for business brokers as well. So, if any of those things sound like you, um, you can check out the the QR code there and take a look at our learning products. And if you are a business owner and anything I said here, you were like, I just can't wait to have a further conversation with Megan because I haven't listened to her talk enough today about um, my business and my goals. You can scan this QR code, you can shoot me an email, you can give me a call. Um, I would love to have that preliminary conversation with you about your business and your goals and whether this might be a path that would work for you. We have a few minutes here. I would love to open it up if anybody has any questions for Mary, any questions for me. You can put them in the Q&A. Um, I don't know if we have the ability for you guys to come off mute, so put them in the Q&A if you have anything you'd like to ask. >> That's great, Megan. You know, I think it's an an opportunity that a lot of businesses aren't even aware of that they could transfer their business to their employees. Um, and most people have heard about an ESOP, but that there's other options out there. So, really good information to have. >> Yeah, thank you. Yeah. No, it it it is um one of my favorite things is is that aha moment when I talk to somebody and they're like, "Wait, what? I didn't know." And when you mentioned earlier, you know, the the worst thing you can hear is I had to close my business down. I wasn't able to find that buyer and it it breaks my heart. And >> I literally started working here and a few years before that, uh, this deli owner had offered me to buy his business. I couldn't afford it. And I wish I'd known that Project Equity existed. Um, it looks like Mary has a question. uh do you have to open up ownership to everyone in the last option or can you predetermine criteria? So it does you can't exclude people on arbitrary basises but you can say you need to like be a full-time employee for example. So it can't be like you know people who have you know the last name Smith get to be owners and nobody else does. You can't do it that way. But as long as it's an achievable something that they could overcome the you know something they could do to become part of that ownership class then uh then you can you can set it up that way. If I think an ESOP is the right form for my company, is it still worth reaching out to you or do you recommend we start with one of the other ESOP focus groups you mentioned? And if the latter, who should we reach out to? Um, I mean, it's fine to start with us. Like I said, if we won't if if if we determine right up top that ESOP is definitely the best option, then we'll just send you over to somebody. Um, but you wouldn't, you know, talking to me is free. So, there's no reason not to at least have the conversation. I would love to dig in and understand what it is that's motivating you to think ESOP is the right path because sometimes there are some mis uh misapprehensions about like what you think the ESOP is going to be. Um so I would love to have the conversation and just kind of understand what you're hoping to get out of it. Um to get started uh I just want to share that when you presented the EOT I wasn't aware I almost cried. It's just so helpful to know what's possible. We're working on right now seems to be a hybrid of model 2 and model 3. Um i.e. it has components of both but maybe cleanly neither. Could this be? Yes, absolutely. Um we that's one of the nice things about our team is that they've done a lot of these transitions both co-ops EOTS mixing therein. There's a lot of flexibility in both models and we uh we really work to rightsize fit the governance to what you're trying to accomplish. So yes, I would encourage you let's let's have a talk and I'd love to to uh learn more about what you're hoping to accomplish there. Uh thank you. How is project equity compensated? Great question. Um, so we are a nonprofit. So like that's why talking to me is free because we're funded by grants and other uh other, you know, sometimes we work with state and local actors. We have a sort of patchwork of different people that are funding the work we do. Um, our technical assistance is not free. It's subsidized, but it's not free. So all of our uh once you move into the feasibility study and everything from feasibility on is going to be on a sliding scale based on the IBIDA of your business. So the feasibility studies range between 7,000 and uh $12,500 for completing the feasibility study. The uh transition services into EOT or worker cooperative range between about 30,000 and about $65,000. And our Thrive services are between 15 and $25,000 per year. So we're we're partially uh compensated paid by the by the selling owners um with the exclusion of Thrive. Thrive would be paid for by the new employee owned business, but transition and feasibility are paid for by the selling owner, but those are at subsidized rates based on the fact that we do have this nonprofit money coming in. Great questions. Oh, one more. >> Business advisor in greater Boston area for a nonprofit economic development agency. >> Uh, yes, absolutely. We do work in uh we work across the entire United States. So, if you're in the US, if you're advising US-based businesses, we can we can work with you. Um, in terms of taking on new clients, um, we, you know, we're we're all I'm always in the intake mode, so I'm constantly, you know, talking talking to new business owners. We don't do a ton of transitions. Like we we run on average about 20 feasibilities a year and about up to maybe 10 transitions a year. Um, but you know, it's also a fairly self- selecting process. You know, we we do a lot of uh deep intake work to understand who these clients are and make sure that we're the right people to help them. And to your point, are there other people that do what we do? In some degree, yes. Um, there are certainly uh other folks that do co-op work. Um there's a lot of co-op developers and we know most of the players in that space and there are certainly cases where we refer clients out to them because you know even though we think employee ownership is the right fit for whatever reason you know we think someone else would be better served taking on that client. Um a as far as EOTS go yes there are also folks in the EOT space. As far as I know we are kind of the only organization that does that is agnostic to the form. Most of the others are going to be very specifically focused on we do EOTS, we do co-ops, we do ESOPS, but we are a collaborative player in that space. So, we're always happy to get folks to the right other provider if we're not the technical assistance that they need. Um, well, thank you everyone. Uh, look for some followup for us. We'll be sending the recording out. We'll be sending some information on how to contact Mary and how to contact us and you'll be getting the slide deck. But I thank you all for spending some time with us today. Well, >> thanks everybody for being here. Thanks.