Understanding Employee Ownership Models

"An owner never says 'that's not my job.'" When I added these words to the Amazon Ownership leadership principle, I was talking about the mental attitude of taking responsibility for things. There is a second type of ownership at work, actual employee ownership within the company. Real financial ownership is essential if you want to see mental ownership from employees. If you work at a company with good ownership, here is how you can leverage it. If you do not, you may want to move. If you are the founder, realize that one of the best tools to increase your own equity is to share generously with others. Working together to make the pie bigger is a much better strategy than hoarding a small pie to yourself. At Amazon, when I wrote the "not my job" words, all office employees got stock and were thus employee owners. On my second day at the TED Conference, I listened to Pete Stavros, from the private equity firm KKR, talk about how they try to ensure all their portfolio companies provide this second kind of ownership, actual equity in the company, to their employees. Stock ownership is relatively common in Silicon Valley and high tech, although even that is changing somewhat. But Pete's firm invests in companies where it is very uncommon. He gave one example of a company that made overhead garage doors. In that company when they bought it, 18 leaders had equity, but the rest of the 800 employees had nothing. Pete found that 18% of employees in such situations actively "hate" the company they work for. They stay at a job only because they feel they must. How productive can a company be when nearly 1 in 5 workers actually hates the company, and a majority are ambivalent or disengaged? Pete works with the leadership of target companies to give every employee *free* stock ownership, on top of their existing pay, that is targeted to increase their compensation by 20%. They also allocate money for the employees to spend on company improvements. In his example, over time the company used the money to add a nice break room, a cafeteria with healthy food, and a medical clinic to the factory. Some might say, wait, this company was so bad it didn't have a break room or a cafe? Remember, this was a small garage door manufacturer in the US Midwest, not the Google Campus! We in high tech and other wealthy, high education industries can still learn from this example: 1) Ownership reduces turnover 2) Ownership increases engagement 3) Ownership aligns missions (making money together) If you are at a company with a strong real ownership practice, then lean into treating your team and teammates as owners. If you are not at such a company, plan to make your next move to a place with real ownership. And if you are (or want to be) a founder, start thinking now about how to share ownership... *for your own good*. Pete and KKR have shared their model: https://buff.ly/4aVOKMR Readers - are you an owner where you work?

An interesting concept that’s been around for decades in corporate thought is the “employee ownership model”. The simple theory being, “if companies allow/help their employees to be owners of the company’s stock, they will benefit from the company’s growth (or suffer with the losses) and therefore think/act more like big picture shareholders”. And sometimes it works and sometimes it doesn’t seem to move the needle. Here are some observations after reading, watching, implementing these practices as well as moving between companies that had or didn’t have these programs. 1) Not all employees are capable of thinking like owners are all times. Take a worker who is trying to survive, that can’t make rent or fix their car, if you try to “build wealth and ownership” without their basic food, shelter, clothing, transportation needs being met, you are probably missing their bigger obstacle. It’s hard to think like an investor on an empty stomach. 1a) There are some social/ethical/risk questions about asking people who work for a company who don’t have a voting control, who could get laid off on any given day, to also have a substantial amount of their wealth tied up in their primary income. You may put workers at risk if they have all their eggs in your basket when they need to be more diversified. 2) Do you want your people to think like owners? I’ve met some executives who said they wanted the ownership accountability, but they really didn’t want to hear ideas, feedback, make changes, or make investments that the employees saw as potentially positive. 3) Beyond the question of do you want co-owners, are you willing to listen to them. A lot of leaders will say “I’m not the overtly top-down leader in question 2, but I’m also not one to take up a lot of other people’s ideas.” Ask yourself this for a test at whatever level you are at. If you think of the last 5-10 biggest decisions you made, and you trace back the origins of those decisions: where did they originate from. On many teams it’s something I call “the same 3 people” who are the 3 people who decide and implement everything. This applies to any leadership level from the shift supervisor to the CEO. If you’ve overcome that, then employee ownership has a greater chance at being a multiplier in your business if many people have voices that get heard. 4) Are you ready to educate and communicate value to your employees. Outside of FP&A and the C-Suite very few people ever know how much of an equity/earnings impact any program has on the business. If your willing to celebrate your successes and failures in detail with your team, they have a better chance at being co-owners. If that splashy new brand launch wasted $100M and didn’t return anything, and you never admit it outloud, then the front-line worker who just saw the splashy roll-out may assume that’s the key making the business successful.

What happens to your business when you’re no longer around to run it? That’s the question we tackle this week on the 21 Hats Podcast—with help from special guest John Abrams and regulars Jay Goltz and Melvin Gravely. All three are longtime business owners. All three want their businesses to live on without them. All three have considered employee ownership. And all three have chosen different paths. John took what many would consider the scariest route: converting his construction firm, South Mountain Company, into a worker cooperative. That decision, made in the 1980s, helped transform the company from $1.5 million in revenue to more than $20 million. He believes the co-op structure created a sense of shared purpose that fueled that growth—and enabled him to step away without a hitch. “My biggest fear about becoming a worker co-op was that decisions would get made that would make this thing that I love become something that I didn't love anymore. Boy, oh, boy, did that not happen.” Jay was surprised. “I hear co-op and I think Birkenstocks and tofu,” he admitted. But by the end of the episode, he sounded intrigued. Having dismissed ESOPs after two years of research—too costly, too complicated, too easily flipped—he realized co-ops might offer “all the good stuff and none of the bad stuff.” He just hadn’t known they existed. Mel, meanwhile, has chosen a different route. His goal is to keep his construction business as a multigenerational family asset. “For me, this is the right way,” he said. Still, he shares many of John’s values—especially the importance of separating ownership from leadership and of giving employees a stake in the outcome. “I love all the options,” Mel said. “What I like most is that there are options.” That was a recurring theme in our conversation: Employee ownership comes in many forms—ESOPs, co-ops, trusts—and what works for one owner may not work for another. John’s book, "From Founder to Future," doesn't try to evangelize one model but to help owners understand what’s possible. As he puts it: “My job isn’t to tell you what to do. It’s to help you figure out what kind of company you want to be.” But we didn’t sugarcoat it. We talked about the risks—like what happens if a company fails and employee-owners lose not just their jobs but their retirement savings. We discussed whether ESOPs offer true ownership or just deferred compensation. We explored how these structures get financed, who bears the risk, and what kind of leadership is required. And we acknowledged a central paradox: For all the passion around employee ownership—and all the business owners like Jay searching for a better exit—it’s still rare. Why? Maybe because most advisers don’t mention it? Maybe because too many people associate co-ops with sandals and socialism? Or maybe because the loudest voices in the room are often trying to sell something? What do you think? #EmployeeOwnership #SuccessionPlanning #SmallBusiness #ESOP #Coops #21Hats #Podcast

You've probably heard of ESOPs but don't really understand how they work. You may know that they have something do to with employee ownership... ...which, if you're listening to Acquiring Minds because you want to be *the* owner of your business, may not be all that appealing. But I encourage you to keep an open mind. Today's guest, Chris Fredericks, has built an ESOP *holdco*. Empowered Ventures has 5 operating companies, 300 employees, and north of $120m in revenue. In addition to the great story of how he got here, Chris provides an excellent primer on what ESOPs — employee stock ownership plans — actually are. And not only that, but why they could be a model searchers explore. There are significant tax benefits. Culture benefits (if done well). And exit benefits. That is, if you already own a business, exiting to an ESOP that *you create* is a real option. In fact, it was how Chris was first exposed to ESOPs. The owner of the business that Chris would go on to lead, wanted to exit. But he didn't want to sell to a strategic or private equity, and there just weren't other viable buyers. An ESOP was the answer. The seller had his exit and liquidity event, and the employees (including Chris) became owners. Chris was president, and this ESOP business became so profitable that it served as the foundation for what is today a holdco with north of $120m in revenue. There is a lot to model here. See if you agree. Here is Chris Fredericks, CEO and employee-owner of Empowered Ventures. 👉 link to interview in comments below