Turning Your Employees Into Owners
Phone: 314.283.1589

A close friend pointed out in my April 21st blog post My Journeythat I did not provide any detail on the way we created our ownership group at Counsilman – Hunsaker.

I knew from the beginning that to carry the firm to the next level I needed an engaged team with a shared risk / reward.  A professional marriage of sorts that had the team members committed to the long term success of the firm.  While my father was not comfortable with partners, I realized that to attract the best, they would want to participate in a meaningful way.  Looking at the legal and accounting fields, if you are not a partner, you have not arrived.  The same is true, although less prevalent, in the other professional service firms like architecture and engineering.

The agreement with my father prevented me from adding partners until his note was paid in full.  However, we started the process almost immediately of laying the ground work for what ownership would look like by discussing all of the various expectations, issues, concerns, and “what if’s”.  We created a white paper outlining the issues and collective expectations on how to deal with them.  We then retained legal counsel to memorialize our goals and objectives.

This was more difficult than one might think.  The legal team wrote the first version one sided focusing on providing every protection and benefit for me.  Our goal was to create working documents that could support multiple transactions over the life of the firm.  We used 100 years as a guide.  On the fifth draft we had a solid structure that was well documented.  The next question was how to fund it?

It is my belief that stock has real value and should be purchased at that value.  We did not favor other stock strategies like phantom stock or different classes of stock.  The stock was not to be given away or discounted.  So how to finance the purchase?  On the first purchase, I provided my personal guarantee to the bank.  Call it priming the pump.  It allowed the bank time to get comfortable with the ownership team.  This was the only time I provided this level of support.  These new owners were taking a leap of faith on me and on a good but untested ownership plan.

A good business decision requires that all parties have all of the information and understand it.  To invest in this success, we provided a budget for each perspective owner to get outside legal advice.  The goal was not to modify or negotiate but to understand the terms of the commitment.  This process served us well.  Our ownership documents and process supported multiple transactions including the purchase of my majority ownership.

The guiding principle that I used in working through all of the questions, issues and challenges was “What’s good for the goose is good for the gander”.

Posted by: In: Ardent 1 comment

mail_image_previewMy personal mission statement has been

“To develop the best possible team, give them the best possible tools and get out of the way!”

I grew up in the swimming pool business. My father started Midwest Pool Management in 1963, the year I was born. I grew up digging ditches, acid washing swimming pools, lifeguarding and managing. As the boss’ son, I had more opportunities than most, but I would also argue that the expectations were higher than most. Through this experience growing up I developed a strong respect and interest in the entrepreneur. When I went to Indiana University it was with the intent of earning a Bachelor of Science degree in Entrepreneurship (it was a major at the time that has since been discontinued). After college I worked for Adam Aronson, CEO of Mark Twain Bank, in a management training program. Mr. Aronson was a dynamic leader that invested heavily in his team. I learned a great deal from him, and many of these lessons are a part of any legacy I have left at the organizations I have led.

In 1989, my father asked me to join the family business. I was eager to help. The advantage of joining a family business is that you get a head start on your career path. I would like to think I would have been successful on any career path, however, the family business allowed me to be tested by fire faster. It has been my experience that success of the next generation is more dependent on the senior generation than the younger. How the family patriarch communicates, shares knowledge, empowers and trusts the new generation is the critical component to success. My father was a master at laying the foundation for me to be successful.

In 1997, I approached my father with another team member to discuss buying the firm. While there were a lot of reasons we were not successful, I realized my father was not comfortable with partners. He was a brilliant visionary in the aquatic world and was exceptional at pushing the boundaries of aquatic design. But, at this point, the firm was at capacity because Dad was intimately involved in every project and there were just so many hours in the day.

In 1999, I was successful in purchasing 100% of Counsilman-Hunsaker. At that time we were licensed in 10 states and had 10 employees. I realized that for me to grow the firm, it would take a team that had the passion and discipline to build on the values my father established. Within the first six months we held our first strategic planning session, developed an open book corporate dashboard, began a formalized quality control process and created a shared fate culture where the entire team shared in the success and shortfalls of the organization. Over time this culture attracted some of the best talent in the industry. Counsilman-Hunsaker stood out as a home for talent where team members could make a tremendous impact.

By 2009, the firm had grown to 37 team members with three offices and licensed in all 50 states. Twenty percent of our revenue was from international projects. In 2003, I began offering stock to team members and by 2009 there were 12 partners. We had built a management team that could do just about anything and were poised for continued rapid growth. While hoping for the best, but preparing for the worst, the recession hit the aquatic industry in 2009. Industry publications indicate the swimming pool market declined 70% between 2008 and 2011. While Counsilman-Hunsaker did not experience this decline, we did have to manage challenges during this period. As we exited the recession in 2012, we had no debt, our market share had doubled and we were poised to enter new markets. Since 2010 the management team handled most of the day-to-day function of marketing, production and planning. My role as CEO was focused on strategic initiatives.

In our 2012 strategic planning meeting, we came to a standard agenda item of corporate stock sales. It was my philosophy to offer shares of stock each year to provide an opportunity to buy in the good times and bad. This seemed the most fair to me. In 2012, I owned 56% of the firm. I had always said I was willing to be a 51% owner, a 20% owner, a 0%owner but not a 49% owner. The plan was for me to go to 51%. I had also shared with my team it was my desire to do another start up and to build another team. This would bring my focus back to my passion for entrepreneurship.

Well, be careful what you ask for … a number of our junior partners expressed interest in becoming major shareholders. This would take me to the 20% ownership range. The fact of the matter was this team had the talent, skills and capability of taking Counsilman-Hunsaker into the future and make it their own. I believed in them and the bank did as well. The bank agreed to finance buying 100% of my outstanding shares. We executed the deal in less than 60 days. This could not have been accomplished without the years of communication, empowerment and trusting with confidence. These team members had already been owners in Counsilman-Hunsaker, both figuratively and functionally for a long time.

So why did I do it? Could I have made more money staying in my role? Absolutely. Do I miss having a highly skilled team of professionals around me? You bet. But it was time to walk the walk and talk the talk. The Counsilman – Hunsaker team was the best possible team, we had the best possible tools and they were making themselves better every day.  It was time for me to get out of the way.

Ardent means enthusiastic or passionate. That is how I feel about entrepreneurship and business leadership. During my business career I have lead eight companies and been involved in 16 mergers and/or acquisitions. My personal mission is to develop the best possible team, give them the best possible tools and get the hell out of the way.  Ardent’s purpose is to provide the information necessary to business leaders to turn their employees into owners.

A recent survey indicated that 80% of business owners plan to sell their business to family members or employees and 20% plan to sell their business to a competitor or outsider. What actually happens is the 20% that plan to sell to an outsider do, and the 80% that plan to sell to a family member or employee only complete the transaction about 20% of the time. Why?

It appears we have very good tools to transfer the goodwill and intellectual property from one firm to another. This is often a straight forward financial analysis and transaction. However, the ability to transfer the institutional knowledge, business management skills and trust to the next generation takes time and effort. To develop the best possible team and give them the best possible tools to carry forward takes communication, empowerment and trusting with confidence. The reality is that much of this planning occurs in a vacuum. Too often we confuse the urgent with the important and fail to make our own firm’s needs a priority.

By turning your employees into owners you have more options. A highly effective management team that is empowered and tested provides the business leader more options when planning for the future. It allows you to fill a wise counsel role and distance yourself from the day-to-day activities with confidence, make your firm more valuable to others, and it provides the foundation to transfer the organization to your employees.

When I ask business owners what their definition of success is, or when they will transition their organization to the next team, the knee jerk response is cashing out when I can get the best possible price. After thinking about it awhile, many reflect on leaving the organization in the best possible hands to carry on and build on the legacy they had built. There is often a desire to make sure the employees and customers are well taken care of. Ardent looks beyond just the dollar to meet your definition of success.

Not making a decision is a decision.

 

 

 

Yves Morieux presented his TEDX talk titled, “As Work Gets More Complex, 6 Rules to Simplify”.  The presentation is a little hard to understand, but well worth the effort.

Historically, there have been two pillars of management.

Hard: Structure, Processes, Systems

Soft: Feelings, Interpersonal Relationships, Traits

These pillars result in complex systems that work around the problem.  The secret sauce of management today is cooperation.  Cooperation allows the team to work through the problem.  When people cooperate they use less resources.   Tenents of management that focus on cooperation include six principles:

  1. Understand What Your People Do
  2. Reinforce Integrators
  3. Increase Total Quantity of Power
  4. Extend The Shadow Of The Future
  5. Increase Reciprocity
  6. Reward Those That Cooperate

Criticism should not be management’s response for failure, but for failing to help or ask for help.

At Ardent, we believe it is important to have the difficult discussions to result in decisions that foster cooperation.  Without a commitment to mutual trust, a complex, bureaucratic system fills the gap resulting in a dysfunctional organization.

I strongly urge to you watch Yves Morieux’s presentation.

 

One of the questions that gets asked during almost every business review in our Vistage meetings is “What Happens If You Stop The Bus”?  As leaders, our job is to live in the future to prepare our organization and family.  Unfortunately, we have little to no control when we will “exit stage right”.

One of our members was fifty and his kids were in college. He had a successful company with a respectable net worth that required tax planning.  After our line of questioning, it became evident that he had very little planning in place.  There were no wills, trusts, or discussions about what should happen.  There was insurance in place for a buy/sell agreement with his partner, but very little structure.

One of the tenents of a group like Vistage is to hold each other accountable.  The outcome of this business review was to have the member bring back a completed estate plan in one year.  When he came back he had a funded family trust, revocable trusts, irrevocable insurance trusts, and wills.  At fifty-two years old  he suddenly passed away from a heart attack.

On March 11, 2012, my father passed away and I was his executor and successor trustee for multiple trusts.  What I learned from these experiences is even with the best formal plans (trusts, wills, etc.), it is very helpful to share the intent and thought process regarding decisions that were incorporated into your estate documents.  Shortly after my father’s passing I wrote two letters.  One to my best friend who was my successor trustee and executor and the other to my business partners.  The following was the outline for my family letter:

Professional Team (name, address, phone number)

  • Lawyer, Accountant, Family Chief Financial Officer, Insurance Agent, Bankers

Balance Sheet

  • Asset, Titling, Location, Account Number, Contact Name, Phone #, Balance, Purpose

Family Responsibilities

  • Our estates would receive at some point funds from our parent’s estates.  Explaining any future impact or transaction will allow better planning.  For planning purposes I roughly provided an idea of what funds or responsibilities might be coming our way.

Family Estate Plan

  • List of every family member, SSN, DOB
  • List every trust, title, tax ID #, and author
  • Provide a narrative of every trust, purpose, trustees, successor trustees, beneficiaries, disposition of trust, termination
  • List of corporations, type (LLC, S-Corp, etc), role, contact, % ownership, estimated value
  • Insurance Coverage, insured, company name, policy date, policy number, owner, beneficiary, death benefit, cash value, annual premium, premium due date, agent name and phone number

Family Operational Plan

Since the intended audience of this letter was not a family member, I described how we lived, where the money came from, what was the cash burn rate, etc.

Directives and Background

In my case, my best friend would be my executor and successor trustee after my wife in some cases.  I will explain more in a future post.

Children:  I shared the strengths and challenges of my children.  Suggestions on what type of mentoring they would need and general discussion of financial support.  I also discussed who should and could be a guardian.  I discussed several scenarios on how he could use trust and personal resources to respond to specific children challenges we anticipated.

Money:  I provided a summary of the resources that would be available and our intent on how to provide for our children.  Our first goal was to do no harm.  We discussed the intent of allowing when and how for them to control their trusts and how we intended to protect them if they were to get divorced.

Resources:  I also provided the names of my Vistage group members.  These individuals know more about me, than me.  They would be a good resource if he needed to bounce an idea off a knowledgeable group.

I update this letter every year and it gives my friend and I an excuse to get together and discuss life.  When my wife and I are traveling the world together, it gives me peace of mind that my family will be in good hands if something should happen.  It gives us the freedom to live life.