Ground Rules For Building An Enduring Company

That Can Stand The Test of Time

Broad-based employee ownership plays a critical role in building the kind of company that can endure over time. Equity is the basis for all long-term thinking. It is the best reason for staying the course, sacrificing instant gratification, and going after the big payoff down the road.

That’s why a company of educated, empowered, and engaged employee-owners will outperform a company of employees any day of the week—especially over the long haul. When you think like an owner, you do all the little things necessary to win.

But people will only think like owners if they have a larger purpose—they need to be working for something greater than just a paycheck. Business is not an end in and of itself. It’s a means to an end. It’s a tool that allows us to accomplish the things that matter most to us, and those things must transcend business to have real meaning and value.

If you have equity and understand it, you know why it is important to build equity for the future. You develop the courage to make long-term decisions. You still pay attention to day-to-day details, but you’re doing it to achieve lasting success—to build a business that creates rich, happy, and fulfilling lives for the people who work there.

YOU CREATE WEALTH BY BUILDING COMPANIES, NOT BY SELLING PRODUCTS OR SERVICES

Equity can provide the greatest expansion of wealth most people will ever see. It’s like hitting an oil field. Better yet, by teaching people how to think and act like owners, they can influence how much wealth they can generate. When employees hit the equity jackpot, they can do more than pay their bills. They can achieve some of their dreams. The opportunity is there.

To turn employees into owners, you must show them the Big Picture. They must know what they are doing, why it’s important, where they are going, and how the business is helping them get there.

Handing out stock isn’t enough. You need a process that can teach people what ownership is all about—why equity is worth having, what it takes to increase its value, how the different pieces fit together, the role of teamwork, the importance of focusing on the greater good. Trust is a key element of long-term business success, and you can’t have trust without honesty and openness about every aspect of
the business.

One of the great challenges of equity sharing is getting people to think about what’s possible rather than focusing on what they have. You want them to be thinking, “How much could this stock be worth in ten years? What can we do to maximize its value?”

You also can’t build an enduring company without understanding how you transfer ownership and wealth from one generation of employee-owners to the next.

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Businesses begin with people. It’s an obvious point, but it’s worth mentioning anyway because it’s so easy to forget. Nothing happens in business—no start up ever gets started—unless someone wants to go somewhere and see the company as a vehicle to get there.

Once you get beyond the survival stage, a shortage of people is the only obstacle to growth. What builds and sustains the culture of the business are the mechanisms you use to educate and train your people and create leaders at every level of the organization.

Everyone has a role to play in making the company successful. Everyone depends on one another to do their part. You need to break down the walls of ignorance that keep most companies from tapping their most valuable resource: the intelligence and creativity of their employees.

Companies are increasingly valued on the basis of their people. It’s inevitable, given the changing demographics of the workforce. Forget about the latest downturn. Economic slumps will come and go, but the population will keep on aging, the employee pool will keep on shrinking, and the war for talent will intensify.

break down the walls quote

You can’t build a durable and enduring ownership culture without a system of ongoing business education. Nobody can think and act like an owner without first understanding the basic rules of business. The two things every business must do to stay in business: make money and generate cash. You use The Great Game of Business to teach people those rules.

Playing The Great Game of Business empowers people to see how they made a difference and how they each contribute to the ultimate outcome. The Great Game is a way to teach people to care about profit and cash and equity, to make connections between the work they did every day and the stake they’d take home at the end. It’s the way to teach employee owners about the Big Picture and to think about the future.

If your people don’t have a chance to make more money, take on new challenges, move forward in their careers, you’ll die from attrition.

As your people grow and take on new responsibilities, you suddenly discover that you have a whole new range of options available to you. The result is that step by step, your business moves to another level. You begin to gain more control over your destiny.

michael kiolbasa quote "Culture is our strategy...When you go through a crisis like the pandemic your culture is amplified. If you have a bad culture, it’s amplified. If you have a good culture, it’s amplified. This crisis showed us that we have a great culture. No matter what strategy we have in place, never take your eye off what really drives our success and that is our great culture."

- Michael Kiolbassa, CEO, Kiolbassa Smoked Meats

A COMPANY ISN’T WORTH ANYTHING IF NOBODY WANTS TO OWN IT

If your aim is to build value in a company over the long run, to create wealth for your employee-owners, you must learn to look at it from the outside in. You can’t view it the way most people in business do, from the inside out. You must see it as investors do—coldly, objectively, without any sentimental attachments to people, products, buildings, history, culture. Why? Because people don’t put money into a business (or remain working in it) unless they feel it’s a good investment for them. They won’t invest in your collective dream if they don’t believe they can earn a good return. If you can’t promise them one, they’ll look elsewhere.

If you want to maximize the company’s value, you must practice the fundamentals of a good business by asking tough questions and insisting on honest answers.

For example, you might ask, what is a strong business anyway and how do you fall short? Do you have good cash flow compared to other companies? Do you have proprietary products? Do you have special knowledge that can’t be obtained anywhere else? Are you sufficiently diversified? How does your return on equity compare to the rest of the industry?

You need to strip away all the things you think are great about your company and view it with the cold eye of someone who has no attachments to the people, no sentimental memories, no love of the culture. Then you can act on an objective assessment of your strengths and weaknesses.

You also need to spend a lot of time thinking about the future—about what could go wrong and what could go right.

You learn to protect yourself against the surprises of the market by having contingency plans and trap doors. You become acutely aware of your vulnerabilities and search for ways to eliminate them. At the same time, you’re on the lookout for new opportunities. You develop the courage to innovate, take calculated risks, and make the investments today that will pay off down the road and provide the funds you need to cash people out.

GETTING OUT IS HARDER THAN GETTING IN (1)-1

There is a great paradox in business: If you want to build a great company, a company that will endure the test of time, you have to imagine getting out. It’s also like quicksand. The better you do, the bigger the pie, the more cash you need to get out.

You must design a business understanding that your biggest problems won’t come with failure. They’ll come with success. But nobody starts a business worrying about the dangers of success.

Getting out is the furthest thing from most people’s minds when they launch a business. Your focus, especially as a startup, is to build a viable company. You get used to viewing the business from the inside out—not as an objective observer, but as a player, an operator. You’re constantly thinking about what you need to do to stay in the game. If you think about getting out at all, you figure you’ll deal with whatever is involved when the time comes. You fail to address tough questions with issues like the valuation of the business and how you’re going to pay your obligations to your employee-shareholders.

You don’t really appreciate the power of equity until you’re faced with the prospect of spending a large amount of cash to buy back someone’s stock. You don’t think about the end of the story.

As the famed entrepreneur and businessman Harold Geneen once said: “You read a book from the beginning to the end. You run a business the opposite way. You start with the end, and then you do everything you must to reach it.” This is a great piece of advice when it comes to understanding what really sets enduring companies apart from the rest.

You don’t really appreciate the power of equity until you’re faced with the prospect of spending a large amount of cash to buy back someone’s stock. You don’t think about the end of the story.

That’s why it’s essential to never go forward without agreeing in advance to a formula you’re going to use to cash shareholders out when they leave. Companies have been wrecked, friendships shattered, and people driven to the brink of a nervous breakdown by failing to follow that simple rule. A wellcrafted shareholders agreement gives you the ability to protect the company at a time when passions are running high. A buyout formula is not just a good idea; it’s an essential element of any equitysharing arrangement.

Change is always difficult, and a transfer of ownership is one of the biggest changes a company can go through. No matter how skillfully you manage it, there will be powerful emotions floating around, notably fear, and they’ll be especially potent in a company with a strong ownership culture. The more comfortable people are with the culture, the more anxious they’ll be that they might lose it.

If companies want to maximize shareholder value over the long term, they must focus on the growth and retention of their people, and there’s no better way to do that than by building a successful ownership culture.

"I think it has shown us how to overcome so much needed adversity within. It’s made us more open and honest with each other and I feel it’s beginning to makes us all more accountable. It’s made me feel like a leader without even having that title. I think it’s made us stronger as a team overcoming adversity that has been needed for a long time. I think it’s made me feel more responsible to the bottom line than any other job I’ve been at."

- Jesse Payne, Maintenance, AMBAC International

BUILDING AN ENDURING OWNERSHIP CULTURE

To build an enduring ownership culture, you need to get the cycle of leadership development going—with people coming in, learning skills, moving up and making room for others, learning new skills, moving up again, and so on. Setting up such a process is a long-term, arduous, often frustrating undertaking. It will also absorb huge amounts of time and energy. But its where all the big rewards come from.

The basic idea behind Great Game practices and principles is to teach everybody the realities of the business while keeping everyone informed about what’s going on in the company—the Big Picture—and focused on what everyone must do to achieve your shared goals.

A combination of trust and business intelligence is the hallmark of an ownership culture as well as an extraordinarily powerful competitive advantage. The payoff is a workforce full of people who care, who take responsibility for themselves and for one another, and who will do whatever is necessary to protect their community and the business behind it now and long into the future.

The whole inspiration of building an enduring ownership culture is geared toward leading people to the epiphany that they can control their own destiny.

Do you need help setting up or maximizing your ESOP? Let us connect you with the right people to help.

Ground Rules For Building An Enduring Company

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