On this episode of THRIVE — sponsored by Workamajig — Kelly and Jennifer Briggs discuss how creative firms can use employee stock ownership plans (ESOPs) or co-ops as a business model, both demonstrating equity and planning for succession.
Episode 103: Employee Ownership as a Business Model, with Jennifer Briggs
Kelly: Welcome back to Thrive, your agency resource. Have you ever thought about employee ownership as a business model for your agency? I know when I had my agency, I definitely considered it but I had no idea how to go about it or what questions to ask. Well, joining me today is Jennifer Briggs. She's the Senior Strategy Consultant at The Beyster Institute, which is actually within the University of California at San Diego. Jennifer, we're going to dive into this conversation. I'm really excited about it. But welcome to the show. Thanks for being here.
Jennifer: Thanks for having me, Kelly. This is great.
Kelly: So, can you tell us a little bit more because I'm sure most of my audience is not really familiar with The Beyster Institute. Tell me a little bit more about the work that you do there. And then a little bit more about your own background?
Jennifer: Yeah. So, The Beyster Institute was started by Dr. Bob Beyster and his family inside the University of California. But our big purpose is to help employee ownership grow and have this public will to grow even bigger. It's a way of helping more people become capitalists by helping people own stock in the company that they own. So basically, employees become your shareholders through a trust in an ESOP. So, we focus on ESOPs at The Beyster Institute. ESOP stands for Employee Stock Ownership Plan. So it's a trust that holds stock, and then the employees are participants in it. And so, the big part is, the people that work in a company sharing the value they help create. And that's it fundamentally. We grow value in our companies, which is something we all want. But your audience for that value growth is your own employees. And so, it's a really cool thing, but it is a qualified retirement plan. So, it acts like a 401k. But it's just different in that way. But I do want to mention that there's other forms of employee ownership. So, there's employee-owned cooperatives, which is another form. You have ESOPs and then some companies start building an employee ownership culture just by doing broad based gain-sharing plans, which are cash and it gives you a way to help grow employee ownership culture, as you grow large enough to become an ESOP.
Kelly: Great. And so, before you were at the institute, you were on the internal teams at a brand and then also had some agency experience. Can you tell us about that if it's not going too far into the ghosts of the past?
Jennifer: Yeah, the ghosts of the past. I think it's an important part of the story though. My first big corporate job where I cut my business teeth was inside WPP. I work for a company that got acquired by WPP. And so, I was working inside that organization. And I kind of started feeling like I was the evil HR person, and I didn't really want to be there anymore. And just because of the type of work I did, it was really fast-paced and fun. I learned a lot there. But then this little brewery in Colorado called me, who was tiny at the time, and said, “Hey, you want to come work here?” And of course, I said, yes. And so that brewery is New Belgium Brewing. If you haven't heard of New Belgium, Voodoo Rangers, kind of the hot brand right now. Fat Tire at the time.
Kelly: Fat Tire. Yeah, of course. Every beer drinker, every craft brew aficionado loves Fat Tire.
Jennifer: Yeah, so I became an executive. I was VP of organizational development, human resources there. And I think what's really important is, what a lot of your other speakers have talked about is that, the voice of the brand, the authenticity. One of the references, maybe to learn a little bit more, is any book by Douglas Holt that he's written. But it's the brand culture cycle and the environmentalism that we had, the employee ownership that we had, the distributed leadership and participative management. How did all those things show up in terms of the relationship with our beer drinkers, on authenticity that we had and that connection to it, which really did lead to, I was there for 13 years, and most of those years were double digit revenue growth. So, we increased jobs, we increased revenue, we increased profitability. And so, it was just a really powerful experience to do that. And so now, in addition to The Beyster Institute, I also work as an independent outside director for ESOP companies. And we really do look at brand strategy as a way to, we all have the vanity metrics, the likes on Twitter, and the Instagram vibe, and all that kind of stuff. But it all has to be for the point of growing the company. And again, when you grow a company and an ESOP, the people that work there that helped grow that value are the ones that participate in it, and that connection is really, really important.
Kelly: Yeah. So, using New Belgium kind of as a case study, can you talk a little bit specifically about the brand image and the impact of brand image as they kind of adopted this strategy?
Jennifer: Yeah, I look back to the growth years of Fat Tire, for example. When we were working on that project, we had this brand persona. We called him the Tinker. And it was somebody who just had this more bohemian attitude, Colorado lifestyle, love to ride bikes in the mountains. We actually did some TV commercials, and I still love those commercials. And the thing was, how that feeling emanated to the drinker's was actually how we were living inside the company. We all have this passion, regardless of what job you were and had this passion for what we were doing, but we were also admittedly kind of a little bit rough around the edges.
Kelly: Humid in other words.
Jennifer: Yes. It wasn’t as polished and posh brand image. It was hopefully playful, in that authenticity, and then, jumped forward to where they are now with Voodoo Ranger. That is another connection point to the consumer of a voodoo is a persona. He's a character. And so, the brands were these characters that really came from, what did the company stand for? What do we look like? And if you look at the change from the tinkerer persona, to the voodoo persona, it really represents the generational shift in the drinker, and generational shifts and what society was doing. And so, this is, when you look at cultural brands, everybody's hoping to jump on this. We want to ride that way. But it also won't show up. It'll show up as disingenuous, right? If it's not matching how you're living as a firm, right?
Kelly: That's a great point. That's really a great point. I want to stick a pin in that. One of the things that you and I had talked about before we jumped on here was that these professional services firms, specifically for our contacts, like marketing, advertising, creative technology firms, who are servicing clients, they are actually only number two behind manufacturers in terms of creating ESOPs, which was like mind-blowing to me. I had no idea. Can you talk a little bit about that? Maybe share an example of a recent situation that you've heard of?
Jennifer: Yeah, so professional services firms in the context of this can also be like engineering firms. So, they're the firms that are a wonderful fit for ESOP because of their design, and the levels of compensation of the people that work there. And so, a good example of an ESOP is Butler/Till in this world, and they acquired Digital Hyve just recently. And so, this is another thing when we look at it, every business owner is going to come to a point where they want to kind of change their capital ownership where they're ready to orchestrate an exit. And you don't always have to sell to the big person, you don't have to sell to the WPPs. You can look for other ESOP companies as potential acquirers. And that's, I think the Butler/Till example is a wonderful example of doing that. And it is an option for smaller companies to do that if the company itself isn't large enough to become an ESOP. ESOPs do need to be kind of a certain size, have a certain headcount. Usually, it's about 50 to 100 people that we start looking at as a viable option. So, for some small agencies, doing it on their own might not be an option. But there's a host of companies out there that help a company really retain that genuine authenticity and that fierce independence a lot of agencies have, which is super cool.
Kelly: I'm just curious because like the 50 to 100 headcount might not necessarily be something that some of the audience members listening or watching this, like they may say, “Well, I never want to get to 50 or 100. Maybe I'm not 10, maybe I'm not 20 people, right? What is the feasibility for an agency of that size to be acquired by a larger ESOP?
Jennifer: I think the feasibility is really strong. What it's like any other acquisition that you would do with any other company, is you want to show your strong business performance results. And an ESOP acquisition acts a lot like any other one where you go through the due diligence, and you go through that process with the company and you get acquired. So, the process is no different. It's just at the end of the day who owns the company. It's the ESOP. It's the trust that owns the company. But another option is to become an employee of a co-op, and that there are a growing number of times companies that are cooperatives act differently, they don't have the tax advantages that ESOP does. But there are a lot of opportunities. And I guess that's the point, to look at exploring this, not exclude it from your menu of options. When you look at an ownership transition, this should be on that menu. And if it's not, well ideally contact Beyster Institute, but contact somebody. There's a lot of state centers that can help companies decide if this is a viable option. But get on the menu, contact people, network, find out what agencies are employee owned, and there are resources that can help with that.
Kelly: That's great. And then just as a follow up to that. You mentioned the co-op option. Does that have a lower headcount in terms of the parameter?
Jennifer: It does. It's just a different model in terms of how to administer it because it's not a qualified plan. So, the qualifications. Our government gives us some tax advantages for ESOPs. And anytime the government gives you some tax advantages, there's going to be something on the other side of it.
Kelly: You got it. Got to get back their money somehow.
Jennifer: Yeah, exactly. There's no way out on this. So, there are other options of doing this or coupling businesses up and figuring out how to combine resources and really make that a strategic advantage. But yeah, I think the big part for me is when companies start engaging a broker or an exit planning firm. A lot of them don't have this option there, or they kind of have some myths like ESOPs are too difficult. Well, there's a lot of really successful ESOPS. Cooperatives have too much democratic governance. You get to design that government. So, there's a lot of myths around this that are just fundamentally untrue when you get to figuring out how you are going to run this kind of business.
Kelly: Yeah, and the institute sounds like it would be an absolutely great resource to start uncovering some of that. Because I can hear my audience in my head, translating all of this into numbers. Talk a little bit about potential increase in revenue, maybe not, I don't know if you could talk to profitability, but certainly increasing revenue for agencies that might be considering moving to either an ESOP or a co-op model.
Jennifer: Yeah. So, there is an abundance of research primarily around ESOPs. I'm a fellow with Rutgers University. There's an institute for the study of employee ownership and profit sharing. And there's also the National Center for Employee Ownership. And these two organizations have done so much research around this. And so, employee-owned companies, ESOPs in particular that have a participative culture. So that means that people are actively working together in growing the business, usually with some kind of decision-making or distributed leadership. I'm a fan of open book management too. But when you combine those two things, we see higher performance than average companies. So, they average more in sales. They grow revenue faster. Their profitability is better. And more recently, with the pandemic, those have also been studied. And the companies that were ESOPs in the pandemic actually weathered it and they showed more resilience during the pandemic. So, they came out of it more successfully than non-ESOP companies. So, this is not new age or anything, it's just kind of been there for a long time. And a lot of companies see stable, sustainable growth. So that's one of the things that they've also seen. As our performance is more predictable, it does tend to be more stable and sustainable. So, these are long-term durable companies that we're looking at which if you're a volatile company, and just kind of want to ride the highs and lows of stocks, probably not a good fit for any ESOP. But most of the companies, your audience wants that durability. They want that…
Jennifer: Yeah. And over and over the research has shown that to be true with ESOP and employee-owned companies. Yeah.
Kelly: I mean, the way that I sort of interpret all of this is that, it's really no different from the idea that I talked about often on the show, which is like, money follows value, right? So, what you're doing is you're supporting the employees, right? They're supporting you because they have skin in the game. Right? And so obviously, they're going to be more dedicated, they're going to just bring more to the table, for lack of a better phrase. So really what we're talking about, is this part of like conscious capitalism or conscious leadership? And like, what's the tie in there? Because for me, it seems very apparent.
Jennifer: Yeah. So, one of the things I think, or I know that ESOPs have in common is their long-termist attitude. So, they're not looking because they're not in the public realm. Even though you're measuring stock, you're measuring value over time. So, you're not going to have the same effect that you have in the public realm where you have this ups and downs and very short-termist attitude on the quarter. And living that one experience, these companies have a long-termist attitude. And when you have a more long-term outlook, I think that also drives a conscious capitalism of what are we going to be like in 5, dare we look at 10 years. And so, then that causes other things to come into mind. And the other part of this is Louis Kelso, who really helped get this law into place in the 1970s. His theory was that it's not that capitalism is the issue. It is that we don't have enough capitalists. And so, where a lot of people don't have access to, they don't have money in their pocket to be able to go buy a company or buy into a company. This is a way of getting more people involved in the capitalistic experience inside a company. And so more people are growing equity, obviously, stock equity, but also, it has a ripple effect of possibly more equity for more people to own things, and to own stock where a lot of people don't have access to that. And so that also, we know that more diverse companies are higher performing companies, right? So, you have all these. It's a multifactor effect.
Kelly: There's a lot of overlap that I'm hearing.
Jennifer: So much. Yeah. And so, you're thinking long-term. You're thinking about diversity. You're thinking about stakeholder effects. You're thinking about the environment now. I'm actually sitting in Colorado as I talk to you and the western slope is like burning in drought. And so, it allows for these things to be part of the consciousness of a company, because you're not just thinking about, well, I have to get my number for the next quarterly return.
Kelly: Right. Well, I'm going to leave it there, because that's a great soundbite. We know that numbers are not the be all, end all. They're just part of the people and planet and profit sort of triumvirate. So Jennifer, thank you so much for being on the show. I really enjoyed this conversation, and you are just like a wealth of information. So, I'll put all those resources that you mentioned into the show notes and thank you again.
Jennifer: Thank you, Kelly.