It’s Like Planning Your Own Funeral

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Loren Feldman:
Welcome, Shawn and Jay. It’s great to have you here. Earlier this year, you guys attended an ESOP seminar in Portland. You had a miserable time and left early. But being the glutton for punishment that we know you are, Jay, you recently attended another ESOP seminar. How long did you last at this one?

Jay Goltz:
Actually, I got through the first night and the next day, but I did leave early the morning after, which is part of the story. But I only missed one class. And the only reason I keep going back is you keep goading me into it. [Laughter]

Loren Feldman:
That’s not true.

Jay Goltz:
No, seriously, I was turned off, but you’re not wrong. You’ve kept telling me, “Jay, don’t let the message from the salespeople turn you off to the concept.” So, as I said last time I was on, I was back to 50/50. But I really believe I have some clarity now.

Loren Feldman:
Well, tell us what you learned there.

Jay Goltz:
Okay, so, first, the agenda looked better than the last one. I go to the first class, and it’s for CEOs, which was a mistake. I sat in a room with 30 people. And I realized there were two entrepreneurs in the room. The rest were put into that job. So, like, they’re not entrepreneurs. Different perspectives.

I looked at all of them, and I said, “Can I just ask you something? I keep hearing about all these regulations and trustees and maybe lawsuits. Do any of you ever wake up and wish you weren’t in an ESOP?” And they looked at me like I was at a vegetarian convention, and I said, “Hey, does anybody ever have a taste for a hotdog?” I mean, nobody said a word. And I realized: These aren’t entrepreneurs. These are people that were put into the CEO jobs, and it’s not the same thing.

Loren Feldman:
What’s the difference?

Jay Goltz:
The difference is, I’m not used to having a boss. I’ve done everything I wanted to do for 45 years. I’ve never answered to anybody. These people that were in the room have always been employees. It’s different.

When I said, “Have you ever wished that you weren’t…” they didn’t even know what I was talking about. Because to them, “Oh my God, this is the greatest thing ever. Look at me. I’m an ESOP.” Whereas I own the business. So for me, it’s a possible downgrade. For them, it’s an upgrade. So you could just see the looks. I realized: I’m in the wrong room. So that was the first class.

The next class was for beginners. So I figured, “Okay, this is good.” They had three panelists, and the guy started by saying, “This is the first time we’ve done this. We really want to try to help people with their understanding, blah, blah, blah.” So he starts talking about the loan and the trust, and there’s an inside loan and an outside loan, and amortization schedules. And I said, “Stop, wait, wait, wait.” I go, “My head’s spinning. I don’t know what you’re talking about. And my guess is, I’m not the only one. Is anyone else confused?” So once again, I looked around the room—no entrepreneurs in there this time—nobody said a word. Like they really got what he was talking about, which I’m sure they didn’t.

So he went through it again. And he started to say, “Well, there’s some synthetic equity. It’s not really…” Okay, so I started to get what he was saying. And then afterward, he came up to me, he thanked me for stopping him. And he says, “You know, I’m trying to fine tune this.” And then he said to me—this is the key thing—“Listen, give me 10 minutes in front of a whiteboard. I’ll explain it to you. You’ll get it.” That’s all I needed to hear. And I am going to sit down with him, because he was a tremendous resource to find there. I actually made, like, six connections that were well worth going for. So, I got through the classes—

Loren Feldman:
Wait, can I ask you, if he could explain it easily in 10 minutes with a whiteboard, why didn’t he just do that there?

Jay Goltz:
That’s a good question, isn’t it? First of all, he was with two other people. So he wasn’t in total control of the thing. They, in fact, didn’t have a whiteboard there, which they should have. And you know what, he’s a professional trustee. He’s worked for ESOPs. He’s bought companies. This is a really solid guy. And I’m sure the next time he does the class, it will be way better, and he recognized it.

But truly, first they make it sound like you can’t give anything extra to anybody. It has to be solely based upon their salary. And then the next minute, they’re saying, “Well, you’ve got this executive compensation.” And I said, “Whoa, whoa, whoa.” And it really was confusing.

Loren Feldman:
Just to make sure that’s clear, you’re saying that your understanding is you have to treat all your employees the same, whereas they were introducing this wrinkle where it sounded like you could possibly pay people who’ve been there longer, or who have higher positions.

Jay Goltz:
No question. This is the phrase: “synthetic.” That was the word he used. I think that means phantom stock, whatever.

Shawn Busse:
Like a bonus plan.

Jay Goltz:
Right. The point is, there’s an ESOP. But then also, you can do what you want internally. So there are two different things. I’ve gotta schedule with him next week. He’s gonna call me. They keep talking about how complicated this is. You know what? This isn’t rocket science. It’s really not that complicated. They just don’t know how to explain it.

So the end of the story is, that was the end of the first day. I wake up at 4:30 in the morning. I don’t usually get anxiety, ever. But this time, I woke up with this thing, like, “Oh my God, what am I getting myself into here?” It was 4:30 in the morning. Luckily, I drove from Chicago to Minneapolis. It’s a six-hour drive. And I thought, “You know what? I’m just going to drive back to my office. At 11 o’clock, I’ll be back in my safe zone.”

And on the way back, in the car, I finally started to realize, here’s my new phrase: These people create “ESOP anxiety.” They create it. I didn’t go there with it. I went there with an open mind, excited about it. By the time I got done hearing about the money, and the loans, and the amortization schedules, and maybe being underfunded. And then they talk about trustees and regulations and boards. And then they talk about all your employees: communicate, communicate, communicate. And I realized, none of these are really a problem. Really.

The math thing? That’s why you hire these companies. They’ll help you figure it out. The trustee and the board of directors? You know what, it’s good for me. I have to replace myself, basically. That’s what this whole idea is. It’s going to take more than one person. That’s a good thing. And even while I’m still coming to work every day, that’ll be a good thing. I’m going to choose them. I’ll get some smart people. All good things.

And then the people part? That’s the joy part of it. I mean, as I said before, I read one book. In four different places, he keeps talking about: hard work, really hard work, really hard work. At some point, it’s like, “God, am I really looking for really hard work?” And I would argue, sitting down with your employees, telling them that they’re going to get shares of stock? I wouldn’t call it hard work. I call that a joyous occasion. So I’m feeling good about the whole thing now. But I had to process it.

Loren Feldman:
Let me ask you, I think you called me on your way back. And I asked you why you woke up at 4:30 in the morning and what the anxiety was about. And I think you said that you felt like you were planning your own funeral.

Jay Goltz:
Yeah, I felt like, this whole thing is about transition and about making sure things go well when I’m not there anymore. And you can’t help but think about: If I wasn’t going to die one day, I wouldn’t have been there. I would argue that most people who do ESOPs, or many people who do ESOPs, are doing it because none of us are going to live forever. It’s not something you wake up and go, “Oh, I think this is great.” You do it because you’ve got a problem. You got old. I mean, it’s a problem.

You know, anxiety is subconscious. It was part that, and it was part all these potential problems. The woman whons the Minneapolis chapter I had a nice talk with. She came up to me after one of my sessions when I spoke up, and she agreed with me. They need to do a class for just entrepreneurs. No employees, no second generation, no third generation, just entrepreneurs. Because we have a different angle on this. We’re taking our baby, and we’re giving it away. And that’s very different from some of the other perspectives. And out of the 900 people who were there, I don’t know that there were 50 entrepreneurs in the room. I really don’t. So, it’s difficult.

Loren Feldman:
Nine hundred people is a lot.

Jay Goltz:
Yeah, and they were mostly employees. I mean, you can’t have the same conversation with employees, with owners who took over their family business. There are different messages. And I’ll tell you, absolutely, the key people I met—whether it’s the nonprofit people or some of the advisers—everyone agreed that the messaging in the industry is horrible. Everyone agreed. Everyone knows it.

Loren Feldman:
The marketing messaging.

Jay Goltz:
Terrible.

Loren Feldman:
All right, Jay. I’m sticking to my position that you should not dismiss this because they’re bad marketers.

Jay Goltz:
Absolutely, no, I’m totally hot on it now. I think the ESOP thing is a lovely, great thing for the right people.

Loren Feldman:
You’re totally hot on it. And you mentioned the joy of being able to tell the employees that they have a stake in the business. I want to ask both of you about this. I feel like we’ve been peeling the onion of ESOPs for, really, a couple of years now, and just constantly learning more. And I felt like something hit me when I was at the Great Game conference a couple of weeks ago, which is that I keep hearing two distinct stories.

One of them is owners who’ve done an ESOP telling about the day that they called all of their employees together, and they said something along the lines of, “I want you to know, I’m announcing that I’ve decided to sell the business. And I want you to meet the new owners, and the new owners are: you.” And it can be a really emotional thing. People tear up. It’s inspiring, and it sounds great. But the other story that I keep hearing is from owners who’ve done an ESOP who say, “You know, the only problem is, the employees? They really don’t care. They’ve got 30 years to go before this pays off for them. And they don’t really feel like owners. Their lives haven’t changed in any measurable way.”

Jay Goltz:
I have the answer to that. Here’s the answer: I would never call them owners. I would say, “You’re getting some stock in the company.”

Loren Feldman:
Well, that’s my question: Are they owners or not? I think ESOPs are great. And I think Jay should consider it, and everybody in this kind of position should consider it. But I don’t think it should be oversold. And I think telling employees that they’re owners might be overselling it. What do you think, Shawn?

Shawn Busse:
Yeah, I mean, if you think about it, it’s hard for an employee to understand a worldview that they’ve never experienced, right? So, you know, it’d be like, plopping somebody on a foreign Island and saying, “Okay, now you’re part of this culture.” It’s like, “What is the culture? I don’t know, I’ve never been here before.” So I think a lot of education is probably necessary to help employees understand what the opportunity is for them on a personal level, and what the opportunity is for them on a business level.

And maybe that’s part of why the message you get, Jay, is: This is really hard. And it’s a lot of work, and it’s very complex. As much as it’s a technical challenge—you’ve got to fill out the right paperwork and sign the documents, blah, blah, blah, blah, blah—I think you and I have both come to the same conclusion, that it’s actually probably not as complex as it’s made out to be. Because you have a bunch of—I don’t know how to put this in a kind way—left-brain people doing the presentations and discussions, when what you really need are some right-brain people to help talk about what this means. And those are usually marketers or salespeople.

Jay Goltz:
No, I think you’re 100 percent right.

Shawn Busse:
A lot of ESOPs, too, I’ve noticed this: There’s sort of a bifurcation. There’s either the professional engineering or architecture firm that becomes an ESOP, and I think in those organizations, it’s easier to communicate and for the employees to figure out, “Oh, I see what being an owner means.” Because with engineers, that model is a partner model. So a lot of them have thought about, “What would it mean to be a partner and to have ownership?” But if you talk about a business that’s making stuff, and you have a lot of frontline employees who make minimum wage?

Jay Goltz:
Forget the minimum, even $25 an hour.

Shawn Busse:
Yeah, even $25 an hour. The gulf between their reality and being a business owner is incredible. So I think that’s the challenge.

Jay Goltz:
My answer is simple. If you bought 10 shares of General Motors stock, would you tell your neighbors that you’re an owner of General Motors? No. You would say, “I have stock.” I don’t think they should throw out the word owner. If you say they’re owners, their first question could be, “Oh, am I going to get a raise?” “Well, no.” “Oh, am I gonna get flextime? I’ve wanted…” No. “Oh, am I going to be able to figure out how we’re going to run the—?” “No.” “Oh, does that mean I’m never gonna be fired?” “No.” “Oh, can I have one of those doughnuts?” “Yes, have a doughnut.”

I mean, they think of owner, they think they can do whatever. Versus saying, “You’re gonna get a share.” You don’t have to backtrack from that. You don’t have to play defense. You just say, “We’re doing an ESOP. It’s stock ownership.”

Shawn Busse:
Yeah, I think the message really should not be: You’re now owners. I think the message should be: We have created something. If we run it right, it will benefit all of us a lot more, and especially as you move into the later years of your life.

Loren Feldman:
I think that’s the key: with the later years of your life. And that’s the thing: A lot of these people who you’re describing, they have a mortgage due at the end of the month. That’s what they’re focused on.

Jay Goltz:
Or I’ll tell you the other problem: They’re gonna think, “What? You think I’m gonna be here in 20 years? You’re crazy.” I mean, I started to downplay when we interview people now that we’ve got people here 30 years, because some of these 23-year-olds don’t want to hear that. “Are you serious? Do you think I’m going to be here for 30 years?”

I mean, I think the answer is: First of all, I was told that you really don’t start to accumulate any decent money for like four, five, six, seven years. This isn’t a quick-rich scheme. That’s exactly the phrase one of them used. But my point is, if you don’t oversell this, and you just say, “You’re gonna have stock in the company. And what that means is that…” Okay, great. But you certainly shouldn’t go tell everybody they’re owners, because you’re just asking for, “Oh, I thought I was an owner. What do you mean, I can’t take off Fridays?” I mean, you’re just asking for it.

Loren Feldman:
I’ve never heard of a situation that does it the way you’re describing it, Jay. Because that’s part of the mystique of this, I think, part of the aura. You want your people to feel engaged. They have a stake in the outcome. They’re employee-owners now.

Jay Goltz:
Okay, you can say employee-owners, but you could just make sure they understand that they’re getting stock, blah, blah, blah. And like I said, you don’t oversell, so you have to start undoing it when they go, ”Well, no, that doesn’t mean you can do whatever you want.” You don’t have to leave yourself open for that.

And here’s the thing: There are plenty of smart advisors out there. I’m sure they’ve been through this a hundred times. I’m sure they can help navigate this. That’s kind of what I figured out after digesting this all. You’re not out there on your own. These companies are very good at doing this. There is no reason to have anxiety. There really isn’t.

Now, is this right for everybody? No. If you don’t have the right employees, if you don’t have a big enough company, if you think that you could sell for a much bigger multiple to somebody that is a strategic buyer that maybe you want to take the cash on the table, if you really aren’t concerned about your employees’ retirement… There are lots of reasons why this doesn’t fit everybody. And I have no argument with any of that. But for someone like me, I’ve got to tell you, it fits really well. Which is why it was frustrating to me, that for someone it fits so well, they manage to get my head turned around like, “Oh my god. What am I getting into?”

Loren Feldman:
What are you referring to when you say it fits you so well? What fits?

Jay Goltz:
It fits this way. Here’s why, for me personally, it fits extremely well. I have a very strong management team, one. Two, I don’t want to retire. If I sold it, then what? You go to work for the company? I’ve seen lots of people do that. And it was the longest two years of their life. I have no interest in doing that. Three, I do care about my employees and their welfare, and I am concerned about their retirement. Four, I don’t believe there is some strategic buyer that’s going to give me twice as much money. I’ve got a weird business. It’s not a plug-in. And I don’t need to squeeze every last dollar out of it.

So this fits me extremely well, and here’s the point: Nothing else does. You can say, “Well, what are your other options?” Well, my other options are: Do nothing and leave a complete shit show when I’m gone, which happens all the time, which is why most companies just crumble at the end. Over the last 45 years, I’ve been to three or four auctions of places that framed pictures, and I always think, “Wow, is this gonna be me one day? There goes you’re racking. There goes your two-wheel truck.”

Frequently, more than not, this is what people do: They do nothing, and the whole thing just blows up. That’s why most companies don’t survive. So that’s one option: Do nothing. That’s an irresponsible option, as far as I’m concerned. And the other option is to sell it. That doesn’t work for me. I want to go to work. I want to take care of the employees.

So, this isn’t a compromise. This is an elegant solution. This accomplishes all of my goals. And I do not see a problem with it, at this point, after thinking about it. As you said to me the other day, Loren: I should stop going to these seminars. Good point. I probably should. [Laughter]

Shawn Busse:
Jay, I love you, man. But I see one potential problem, and I’m curious if you’ve thought about this. So, you just recognized, as is my theory, too: There’s not a strategic buyer out there. And probably the reason for that is that it’s a declining industry. You’ve talked about how many frame shops have gone out of business in your lifetime, and how they continue to go out of business and how fewer and fewer people are framing. How do you set the next generation up for success in a business that is declining?

Jay Goltz:
Oh, I have an easy answer for that: I don’t know that it’s declining. It’s mature. It’s not growing like it used to, but it’s definitely not—

Shawn Busse:
You don’t think it’s declining?

Jay Goltz:
Maybe a little bit, but it’s pretty stabilized. More importantly, in my particular case, my wholesale side, where I sell to other frame shops around the country, is doing very well because we have a much cooler line than everyone else. And it was picked by people who actually use it. And so that’s got lots of growth. And my home store has got lots of growth. So I do have some growth vehicles still.

Here’s the other thing: I’m not looking to grow at 10-15 percent here anymore. I gotta tell you: If I grow at 6 percent, I’m just perfectly good. It’s big enough. So yeah, I absolutely thought about that. If it was just the retail frame business by itself? I’m confident the framing industry is not going out of business. It’s just the Baby Boomers are retiring, they’re doing less framing, their pictures are on the wall. But it’s stabilized. The framing industry is not going away. It’s kind of getting right-sized, but I do have those growth things.

So I really can’t think of a thing that I’m going to wake up one day and go, “Oh my God, what did I get myself into?” I think this is going to stabilize the company. It’ll give stability to the employees long-term, and it will help their retirement. And there’ll be just a little lift—just a little—a little more engagement from people. Just a little, like, I’m not talking 10 percent. Like 2 percent, whatever. And then maybe some good PR. So I think there’s lots of upsides to it.

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