NEW PODCAST: INVESTING THROUGH ESOPS WITH EMPOWERED VENTURES

My guests today come from the recently created ESOP holding company called Empowered Ventures which today owns TVF, a textiles company in Indianapolis. Chris Fredericks is the President of TVF and Empowered Ventures and will be joined by Spencer Springer full time once Spencer’s MBA program with Northwestern is wrapped up. During this episode we talk about pros and cons operating an ESOP and using it to acquire companies, how they build an employee owned culture, and some of their plans for Empowered Ventures. Chris and I connected late last year and I knew it would turn into a podcast one day and I’m very glad it has.

One other note, you might notice my closing questions happen 2/3rds of the way through the episode and not at the end. Our trains of thought just kept going and hope you enjoy the results.

Episodes of Think Like an Owner are available on iTunes, Spotify, Google Play, Stitcher, Breaker, and TuneIn.

https://www.alexbridgeman.com/podcast/investing-through-esops-with-chris-fredericks-and-spencer-springer-from-empowered-ventures-ep-19

Full Transcript:

Can you walk us through both of your backgrounds and then how you eventually connected to it with each other? And then what you're building with Empowered Ventures?

Chris: Sure, yeah. So my background, grew up here, Central Indiana went to IU, majored in Accounting went to mid-regional accounting firm for five years, forget my CPA, that was BKD. And then left there, just decided Public Accounting wasn't my future career path, went into a small private company called Top Value Fabrics. And there, I ended up moving up to the CFO role within a few years and then the owner at the time, his name was Dick Hanzel, he gave me a lot of opportunities to help the business advance and one of the things that he ended up asking me to help with was his succession planning. And with his succession planning, he had had quite a few attempts before to figure it out. He didn't have any family in the business. He had tried a few management buyouts that failed, and so, he was kind of feeling stuck and he also had some health issues coming on, so he asked me to help him figure it out. This was in about 2000, late 2009.

I ended up proposing ESOP. I wasn't really familiar with ESOPs before, but as I got familiar with it, I thought it sounded like a terrific option for him. So I presented the plan, he luckily went along with it, and I ended up working on that transaction for the next six to nine months, and we ended up accomplishing a 100%-sale to the ESOP, October[redacted]So, with that change, I ended up becoming president of TVF and have led TVF since then as an employee owned company. So, how that ends up leading to Empowered Ventures and Spencer joining. So a few years later, probably five years later, after a good number of years of success as an employee-owned company, which I'm sure we can dig into more if you'd like, I was thinking about what the future holds for TVF, knowing that as an employee-owned company, we have a lot of people that are really ambitious and want to do interesting and fun projects and also with the success we were having, knowing that we were probably going to have resources, we needed to figure out how to deploy and what to do with.

So, I just started thinking about acquiring companies, and especially diversifying through acquisition. And so that was on my mind 2015, 2016, but we still had plenty to work on at TVF, but over the last couple of years, I started getting really serious about that idea and talked to my board of directors about it and they were very supportive. So last year, we started an action plan to launch Empowered Ventures and that basically has recently fully transpired, new website, Spencer joining and now we're kind of off and running.

Excellent. Spencer, how about you?

Spencer: Yeah, so I was working for a very successful private equity firm here in Chicago and on my way to work one morning, my mom called me and she said, "I have this business." She built a really nice Home Healthcare Services Company and said, "I want to retire soon. What can I do with my business?" And I said, "Well, Mom, we could probably try to sell it so you can have some money to help you retire." And she said, "Great. We can put it on a site like eBay, right?" And I was like, "Well, Mom, we could but if we want to do it right, it's going to take a lot of work and prepare the company for sale." And fast forward six months, I left my private equity job to help my mom grow her company, prepare for sale, and then lead the sale process. And we ended up selling it last year to a $5-billion public company, so it was a really nice outcome for her.

And as we're nearing the end of that sale process, I enrolled in Northwestern's one-year MBA program and that was really focused to have that transition of, "I want to go do something more entrepreneurial, and around that time I connected with Chris and what he was building within Empowered Ventures, and I was like wow, I wish Chris was available when we were leading the sale of my mom's business because that would have been the ideal buyer and outcome of how do you reward your employees, but also get a really nice outcome for the seller, and we can talk more about that later.

But I just didn't see that when we're going to market with her business. There's a lot of private equity interest, we got a lot of interest, obviously, and sold to a large public company, but there wasn't that hybrid model that we really found. And so when I met with Chris and learned what he was building, I was like, "Wow. This is truly unique and special," and I think it's going to be really differentiated as he works to build a firm.

So, what did your mom care about in selling her business and were there certain things she looked for in buyer?

Spencer: She built the business from scratch and so, a couple of things were her big priorities. One, what's going to happen with her business in the future? She just didn't want it to become part of some big conglomerate, and in this case, with a public company, it was going to be more of a standalone platform company and that's what appealed to her. But she was focused on, what was her legacy going to be? How could she reward her employees? How can she reward the people that helped her build this great business?

And I think lastly, she said, "I want to get a market price for my business. I'm not going to take a huge discount to meet those first two criteria. I want to make sure I'm getting a fair price." So, I think each of those three things as we looked at private equity groups, as we looked at strategic acquires, I think we did really well at the end of the day, but I think all of us would say, "We didn't perfectly check all three boxes, like other firms like what Empowered Ventures is doing could actually do.

So, explain more of the ESOP model. I only have a basic understanding, but how does that model work, and then how does Empowered Ventures build on that?

Chris: Right. So, an ESOP is an Employee Stock Ownership Plan. I think probably a lot of people are familiar with it, but maybe don't fully understand kind of what it really is. So, an ESOP is a tax-qualified retirement plan. It's really similar to a 401K plan that owns the stock of the business. And ESOP, essentially the way it works is employees receive an annual allocation of shares and that's the retirement benefit that the company provides and the shares of the company are spread out over the course of some long period of time. In TVF's case and Empowered Ventures' case, that's 25 years and that started in 2010.

So, it's essentially a level amount of shares to annually get allocated to all of the employees, and then those shares are revalued annually by an independent valuation firm. So, employees actually receive a statement every year of their new account value and in a lot of ESOP companies that becomes a moment of celebration and excitement. People do share price parties, most ESOPs do guess the share price, et cetera. But over the course of time as that grows, you really start to see a lot of power and shared ownership amongst the whole team.

And then, so how does Empowered Ventures factor in then?

Chris: So, TVF is currently owned by the ESOP and Empowered Ventures is going to essentially be wedged in as the parent company, so the ESOP's going to own 100% of Empowered Ventures and then TVF as well as the other companies, operating companies that are going to be part of our portfolio over time, they are going to be subsidiaries of Empowered Ventures as well.

So, Spencer, you alluded to it a little bit, but there's checkboxes that the ESOP model can offer to business owners looking to sell, so what are some of the advantages for an ESOP when approaching a buyer or excuse me, a seller?

Spencer: Yeah. I truly believe this is unique and like I said earlier, I wish an option like this was available when we were approaching the sale of my mom's business because it adds, I think, a few really tangible benefits, which is, one, how can you get a market price for your business? And so, as part of an ESOP transaction, we have to engage a third party valuation firm to say, "Yes, this is a market value that we're paying for this business." I think the other part of it too is how do you create life changing outcomes for the employees that are at these companies?

And Chris can talk about the incredible amount of success that they've had at Top Value Fabrics, but the ability for these individuals who were employees, now allow them to transition into owners, it's really created truly a life changing financial outcome. And as a business owner, and in my mom's case, this was like, how can you reward those people that helped you build this great business, and you can do that with an ESOP model because when the transaction closes, those employees all become owners of the business and they actually get to benefit from the future success of that business.

So, not only is it the market price, but you're rewarding the employees, I mean, I think it's a combination of, I'm not big on analogies, but I think this one is so applicable with it's having your cake and eating it, too. And it's truly a special outcome that I think is unique in the market as somebody who worked in investment banking and private equity and then led the sale of a family business, I haven't seen anything else out there that really does this model and creates a holistic outcome for both the buyers and the employees who are going to become future owners.

Chris: And to add to that, so the way I think about it, sellers of small privately owned companies, for most of them, they've spent their life's work building this organization, they are a founder or they acquired it at some point, it becomes their baby, it becomes their personal sense of purpose and meaning and legacy. So once they get towards the end of their time at the business and they start to feel like they need to sell, it's a really hard decision for them to even consider doing that first off and second, a lot of them I would say are scared that whoever they sell to is going to ruin their life's work, do something to it to change the culture, let go of the employees they care about, go for short term results over the long-term success of the business. So, finding a buyer that they can really trust with their legacy is easier said than done, I think.

There are definitely great buyers out there that can be found that will look after a seller's company, but it is a fear that a lot of them have because there have been a lot of horror stories about what happens to a business that gets sold and then ruined essentially for various different reasons. And we want to be that buyer that a seller can quickly get a sense for our appreciation for what they've done and what they've built and develop a sense of confidence that we're going to essentially be a steward of what they've done and help take it to new heights, but not ruin the special culture and thing that they have created.

You also alluded to it earlier, but how has the model worked with TVF specifically? You said it had been fairly successful?

Chris: The ESOP took over in 2010, and since then, financially, we've had great success. We've basically doubled sales and tripled profits since then and we've grown in the business and taken on a lot of really great new projects to modernize the company, implement ERP and other projects, but the soft changes, the more cultural changes have been really palpable as well. We've seen significant improvement and growth and like employee engagement, and that ownership thinking that I love how your podcast title, it definitely resonates for an employee-owned company, because that's a key part of being employee-owned is everyone truly embracing that ownership thinking, and we have seen that I think to a huge degree at TVF.

Do you have any comparative examples you've seen where you can look at your own culture and then you see a different culture without that model and you've noticed some differences within some of your employees and how they behave and look at the company?

Chris: Yeah. I mean, the really palpable thing is every time we hire someone new they come in and they're blown away, in terms of, "Wow, this isn't what I'm used to in a work environment." And there's a lot of great companies that are not employee-owned. I just think employee ownership makes it easier to accomplish that culture that everybody strives for because it truly does align interests and benefits in a way that you just can't do otherwise. But yeah, when people come and they join and they tell me personally how excited they are to be here and how different it is, that's really what gets me excited. That's super exciting. What other things besides the ESOP model specifically have you put into the culture to make that happen?

Chris: It's really about spreading that and that ownership mindset throughout the business, so things like pushing decision making down to whoever should be making decisions, and also, using bottom up approaches for a lot of things like for instance when we went through an exercise to establish our core values and our mission and our vision, those types of things, we didn't start with me and what I think they should be. We started with a truly bottom-up approach, so that the entire team ended up feeling very invested in the results of that. So we don't just have core values that I picked and put on a wall. We have core values that the entire team essentially came up with and agreed on to drive our culture going forward.

Spencer: Yeah, I think, as an outsider, when I first met Chris and started learning about TVF and what was going on and then specifically the Empowered Ventures model, I was saying, I was I kept asking myself, "How is this really different?" I understand that employees rally behind being owners and you create some market value, but how does this actually translate and Chris can talk more about it, because he was the one leading this at TVF. But when the employees became owners, so historically, TVF was operating, it's a textiles distribution business and it's a GDP-ish growing business, so 2% or 3% a year. When they did the transaction in 2010 until now, they've grown at a little over 9% year-over-year revenue growth. And then so I share that data point to show how employees rally behind and actually become owners, it creates a completely different culture and a completely different financial outcome and growth directory that I wonder would have happened if they weren't owners of the business.

What are some potential downsides to an ESOP model either for employees or for owners selling to an ESOP model?

Chris: That's a great question and it's a fair question. There are potential downsides as with any owner-buyer approach. The real downside or potential downside to an ESOP transaction is doing an ESOP transaction, but not embracing it as a cultural approach, so there have been a few ESOPs in the country over the years that they did a transaction purely because there were financial benefits to doing an ESOP, but they didn't change anything else about how they ran the company. So it continued to be managed from a top down perspective. They didn't really educate the team on what it means to be employee-owned.

There's a whole kind of approach to running an employee on business that's just a little different and you need to make sure you truly embrace it as a culture and including your people in your processes. If you don't do that, then if the business doesn't perform really well and the employees don't feel like it's helping the business and helping them, they could actually get resentful that they've been told that they're owners or employee owners, but nothing about the business is different and they're not seeing financial results, so that's the potential downside is that it could actually be a negative if you try to use it, but you don't embrace it.

Spencer: We have the same issue in private equity, too, is a lot of private equity firms for senior management teams will create phantom stock plans where the management team will get a phantom equity payout when the company gets sold again and what's hard is that I think firms and we were faulted to this, too. I was faulted to this, too, when I was in private equity is not really sitting with a management team and saying, "Hey, here's the value of what your equity is going to be worth." And it created this environment where people didn't fully appreciate how much their stock was going to actually... what is it going to create into and how much it could be worth something.

I think Chris, and as I spent more time with him at Empowered Ventures and seeing what they're doing at Top Value Fabrics, they really honed in into, "Here's what the stock value is worth and how it impacts each employee," but I think that that problem not only can happen potentially in ESOPs, but it happens more broadly across the investing community. Turning it back around to the other side, so how does the ESOP model, from the business owners you've talked to so far, how is it perceived by them?

Chris: Yeah. So, I've talked with quite a few potential sellers over the last year even though Empowered Ventures hasn't been live formally, we've been exploring opportunities for over a year already and gotten pretty close on a few. One was very close. Their reaction was what I hoped it would be. I think, for a lot of private owners, it's exciting that they would have an option to get full market value and their employees joined such a cool program. So that possibility of their employees being part of our ownership team, it was exciting to a lot of the potential sellers.

Are you able to talk about how that process at least for the last few weeks since you now have a website and you're able to be a little bit more public with it, which is exciting. How is it then just recently?

Chris: Spencer's been talking with a lot of our current opportunities as he's joined with what we're doing, so I'm going to let Spencer tackle that one.

Spencer: We've gotten a lot of interests, I think and I think that reaffirms the uniqueness of the Empowered Ventures' platform and what it's offering, both from a lot of interest from sellers that we've been talking to as well as business brokers saying, telling us about, potential opportunities that aren't even on the market and saying, "Hey, I know this business owner, he doesn't want to sell to anybody, let me make an introduction for you." And I think that's pretty special and is a testament to the differentiated platform that Empowered Ventures has in its building.

Yeah. So how then can you continue to build on that? So, if you're getting brokers who are taking sellers to you, what are your thoughts around trying to build that up even further?

Spencer: It's really my focus with coming onto the team and helping build this out is building long-term relationships. I mean, we're going to be in the business of buying businesses and holding indefinitely, so we have no intention of ever selling, so I think about this as more of a long-term relationship building business than just a transactional, closing one transaction and being done. So, we're in the fortunate position of having that flexibility to say, "Hey, let's build relationships with brokers and create a network effect of whether it be geographies or industries or company sizes," that we think would be a good fit for our group and we could be a potential value at.

Is there a region in the country that you're looking at primarily for acquisitions?

Spencer: Yeah. I mean, for us right now, Chris and I, we're talking about this and we're trying to be as flexible and having as broad of a funnel as possible. I think, off the bat, we'd love to find a business in the Midwest, just given we're based in Indianapolis. If we could find a business in Indiana or Illinois or Michigan, Wisconsin or Ohio or somewhere nearby, that would be a great starting, first the acquisition of Empowered Ventures. But over the next year and plus, we're going to expand that and then find a business out by you, Alex, on the West Coast, and we'd like to grow that as much as possible. I think we're being as flexible right now and really focusing on what's the right opportunity and making sure there's cultural alignment, and then refining as we build that out.

How related to TVF are these businesses? Is there a certain scope of industries you're willing to look at? And then, where do you draw the line where the business model itself or industry isn't as appealing to you?

Chris: Well, I guess two separate answers to that question, but the main answer is that we're looking for primarily business to business, manufacturing, distribution business services, not necessarily related to TVF at all. We are looking for diversification, so looking outside the textile industry is what Empowered Ventures is being tasked to do. Separately, we'll continue to look for add-on acquisitions, so we've done an add-on acquisition at TVF already. We'll continue to do that, and then in the future, once we have more companies added to Empowered Ventures, we'll continue to look for add-ons that makes sense for those companies as well. So the long-term strategy is to do both, but right now the focus for Empowered is to diversify through B2B businesses, basically.

Spencer, has that been your area of expertise in your own industry or your own experience so far, and has that been able to complement your work so far?

Spencer: Chris and I coming together, it's actually it's become a really nice complement. So, Chris has a lot of experience in distribution and manufacturing grew up in a manufacturing distribution services family businesses, and so, I grew up in a family of owners and operators of services companies. And so my whole career has been focused on services companies either growing up, I worked in an investment banking group that focused exclusively on services companies and then the private equity group I worked for, before selling my mom's business, was one of the top performing services investors. So, my whole experience has been in services, but that broadly includes some distribution and some manufacturing services, but I think Chris and I are a nice complement to each other covering the manufacturing, distribution and services industries. With that current experience, do you intend to build an expertise, keep your expertise there or is there another set of industries maybe two to three that you'd like to focus on or do you prefer to remain a generalist across the board and just open to great businesses wherever you can find them?

Spencer: Yeah. It's a great question. How I think about it today is we're focused more on business model and what are our business model characteristics and there's a lot of applicability that you can translate from one business model to the next. So, distribution has certain characteristics that you can apply to a services business, and I think that's where it will allow us to be a more sophisticated partner as we're looking at businesses. But with that said, we do have some investment theses that we are building out and saying, "Hey, we like this industry. We like the long-term tailwinds. We'd like to find something in here."

But also, we want to make sure that we're being cognizant of our ability to be a true partner to these to these companies. We don't want to buy something like for example, we wouldn't do a B2C business today because our experience both lies in B2B businesses and we want to be a true partner in this and I think that makes us better as we meet with business owners, but also as it becomes an ESOP we can actually help them build great businesses and achieve the growth that Chris has had at TVF.

Chris: This is something I'll add to that, which is maybe a little bit off topic, but as we add these companies, the plan is to build a pretty robust team at Empowered Ventures and of course, a deal team, the team that finds and evaluates the deals and accomplishes all that, but we also will want to add experts that can provide strategic support to all these companies. So, there will be some synergies there where if we can bring on, if we have a few different distribution businesses, our Empowered Ventures team will be able to develop our expertise around the industries that we're focused on. Having said that, I do think we are being somewhat opportunistic at this point.

What we're looking for is not necessarily extremely differentiated from what a lot of private equity firms are looking for, but what's different about what we're looking for is the seller, what the seller wants in an outcome. I mean, that's what we're really wanting to find as a seller that's excited about us as a partner and with that, and a good business model that's already established for a successful business. We think we can really create something special.

And then are you looking into primarily used broker networks to find your businesses? You mentioned your relationships that you're developing with them or are you also looking at direct owner outreach for finding potential deals?

Spencer: Yeah. I think it I think it needs to be a hybrid approach and so the approach we're looking at is weighing both of them and putting a lot of resources buying both. And so, not only do we want to develop strong relationships with brokers in the markets we're targeting, because that has an implied network effect to it, but we're going to be doing what a lot of people call proprietary average, which is getting in front of great business owners and developing those relationships. And those tend to have longer lead times to when a sale process happens, but we want to get in front of those individuals to see if we're the right fit and find good businesses where they value our offering, and we value what they've built.

Chris: And coming into this, I have assumed that proprietary outreach would be the primary focus, maybe even the only focus, but that's changed pretty quickly here recently, as Spencer joined and also, as I've increased on my own. The conversations I've had with brokers, their response has been phenomenal, so we've had a lot of excitement with some of the brokers that we've talked to, because what they're looking for is a differentiated option for their clients. And they've truly seen that in what we're doing. So that's been a little surprising for me, but very exciting, so created a new focus and avenue for us to build out our sourcing approach.

Spencer: I think it's twofold. I think broker relationships can be really powerful because it has a network effect and canvassing the landscape of available opportunities, so instead of one person calling on opportunities, having those broker relationships creates a powerful network effect. And the unique thing with Empowered Ventures is that we're building something for the longer term, so we can forward invest upfront now into developing long-term broker relationships that some groups may be that are more focused on near-term opportunities might not have the same opportunities that we would today.

And then just from the TVF standpoint, is there something you can do on that end to increase that number of business owners you're able to talk to you? Like, is there a network you've already built through TVF that you can use?

Chris: Yeah. So, first off, there's our customers and our suppliers in that network. We do some outreach around that especially as we've been searching for acquisitions for TVF, specifically add-ons or potentially even customers. I think we will be a little careful how we think about that. We don't necessarily want to acquire any customers that compete with our other customers. So, we'll be careful around that, but when it comes to the rest of our network that we've developed over the years, so bankers, lawyers, accountants, professional, networks in the area, definitely. We've already basically put the word out and had a lot of conversations.

That's how some of the better opportunities we've looked at during the first year, how they came about. Some of our board members have really large networks of business people that they have developed for decades. So, through them, we've already gotten the word out a lot locally, and I anticipate that will continue to result in some good opportunities, but as everyone who plays this game knows, you have to have a really big funnel to find the best opportunities. So, that's where the work Spencer's doing is so important for our long-term vision, which is to be relationship-based and ultimately acquire lots of companies. The vision is 10, 12 plus companies within 10 years and to do that we're going to have to use relationships and systems to get out there and find those great opportunities.

Yeah. And then to that point, there must be a few businesses that you've come across or you've known over the years that the owners may be in early 50s and doesn't want to sell yet but you know in seven or eight years, they're going to want to sell. So, how do you work on building those relationships while also keeping in mind that you want to acquire a company by the end of the year and the next year, so how do you balance trying to find the immediate need to find a company versus continuing to build out those very long-term relationships that eventually lead to a sale, just not today or not very soon?

Chris: Yeah. I mean, I think Spencer can probably answer this question as well because of the work he's already done so much of in his past. But the way I think about it is just being interested in people because even if someone has indicated to me like I may want to sell my company someday, chances are low that we'll actually be the one that they end up selling to, but I personally just get a kick out of helping them think that through. I mean, it's fun to talk to a business owner and help them find what's truly best for them. Because side note, I'm happy to help people create their own ESOPs. We haven't really talked about that, but if a business seller really wants to create an ESOP for his own company that's just a single-company ESOP, that might be the better option for them than selling to a holding company like us.

There's two different scenarios there that are pretty unique actually. So I'm happy that I would, I would get a huge kick out of helping someone do that down the road or find the right PE firm. There's a lot of great PE firms. So, I think this is about being a part of a really positive collaborative approach of being in this industry, which is to help each other find the right outcomes.

Spencer: And I completely agree with what Chris was saying that two things: One, we have the ability to be patient and forward invest in relationships and two, with our experience in M&A and in the industry, we have a pretty good handle of all the different options that are available out there. And so, whether our groups are a right fit or as Chris mentioned, an ESOP might be a better fit or maybe it's a different type of buyer out there, we're more focused on developing those relationships with business owners. And we find it fun talking through what their potential options are, whether it's us being the right fit or maybe it's somebody else, so we can make those appropriate introductions.

Yeah, especially to the point about search funds, so a searcher may come across a company they love and would love to acquire one day, but they can't, because they only have two years to find one and so, they can't spend time on that stuff that gives you guys that flexibility. So in that sense, who do you view as your competitors for these businesses?

Spencer: I think anybody could be considered a competitor, any type of acquire, whether it's somebody that when I was leading the sale of my family business to a strategic acquire to a search fund to a private equity group, or anybody in between could be "a competitor," but I think that every option has a different value proposition to the business owner and is able to provide something different. And for our group, I think our offerings a lot different than, as you mentioned, Alex, a search fund. It's focused on funding one business that they're going to acquire and run versus us, we're looking for several businesses that we are going to own for the long term and create ownership opportunities for employees that those employees may not have had in other options.

If there's a class in college that you could teach about anything you wanted, what would you teach and why?

Spencer: I think it'd be really fun to teach entrepreneurial finance, and the reason for that is twofold. It's one there's so many lessons in being an entrepreneur that that I think doesn't get taught in general education and specifically the financial learnings that come from that, that can really propel an entrepreneur and helping them grow their business or operate their business and those things can really accelerate their growth potential. I think the other part of it is just the engagement and so, having an entrepreneurial class tends to self-select people that are interested in the topic and I think it would create for a very lively class discussion that might not be as present in other types of business classes.

What's a belief you had a while ago that you held strongly that you've since changed your mind on?

Chris: Yeah, so and I apologize in advance if this is too heavy, it has to be the right answer for me. Whether people are fundamentally good or bad, I think is a critical question, and especially with everything we're seeing going on right now in the world, I think it's just so important that we all understand each other and and appreciate each other. And to me, I don't know if you're familiar with this, but there's this like story of the two wolves and that really informs kind of the way I think about people now. There's also a Sirius Black quote in the Prisoner of Azkaban and it's essentially that we all have good and bad in us and it's about which part we feed is really the net of who someone is, so I think we should be more optimistic about who people are and what they're capable of.

That's awesome. That's a good quote too. My fiancée hadn't seen the Harry Potter movies, so for 10 days, we watched all eight movies in a row, and it was awesome. Now, she loves them.

Chris: Epic. Epic.

What's funny is that I almost enjoyed the Harry Potter Subreddit memes more than the movie. Those are some really good ones. What's the best business you've come across?

Chris: So, there's this company that I got a chance to get to know a little bit. They make CNC cutting tables, and what they're particular niche is that they provide high-quality affordable tables, but what was really cool about this business is that they use their own tables to manufacture their tables. So, with that dynamic, they were able to do some really cool things like push the tables to their limits, like not do any maintenance to see when they would fail and basically troubleshoot how to help customers by getting to know their machines in such a deep way, so I don't know. In so many ways that dynamic just really informed that company's ability to provide outstanding customer service. So, that's my answer.

Spencer: One of the best businesses that I saw and have seen is it's a trash and waste company in Colorado. And normally, you'd say, "What's so special about a trash and waste company?" But when I was working in private equity, we actually partnered with the founder and entrepreneur with the business and this company was based in the Rocky Mountain region. So, think of the big ski towns, they were the trash company that picked up all the different trash and what was unique and actually made it the best business I've seen is how they used technology to make the business a lot more efficient.

And so what that translated to is better route density, which is being more efficient and picking up your routes, and then that reduced the amount of time that the truck drivers and the trash pickup guys and girls were working to pick up trash and that allowed them to have higher engagement because that freed up more time for them to work on other things with the company or personal projects. So, it almost created this flywheel culture where as a company became more technologically advanced, it became more efficient and then it created up other opportunities for everybody within the organization to take on additional roles and have more engagement and it just, it created for a very fun culture that I think that I hadn't seen to date in an old world business like trash pickup.

And the outcome of the business had ended up growing to cover all of the trash within the Rocky Mountain region, so pretty much every ski town it was the sole pick up provider and they were in multiyear contracts and they're picking up every week. And then because it was a private equity investment, after four years, it ended up getting sold to a large public company, which was a really nice outcome for the investors. But it was I think to this day, just the entrepreneurial culture and the ability to think creatively and critically in old world business like picking up trash, it was really cool, very special to see. And frankly one of the best businesses I've seen from both a financial standpoint as well as an entrepreneurial leading edge standpoint in an old world industry.

What are some great businesses if you can describe any that you've come across through Empowered Venture so far? Maybe not specifics or names, but what types of companies can you give, just some rough non-identifying examples perhaps?

Chris: One I've looked at before that was really interesting was a construction materials supplier. What was interesting about them and I won't name the actual product line because that would be a little too specific, but they're a niche provider, manufacturer and provider of a product that is most sold by huge conglomerates. So, in their words, their annual revenue is less than the annual scrap, these large producers and manufacturers from the waste of the manufacturing process, so they just completely fly under the radar. They're so small, but for us, they would have been a good-sized business, and they're very profitable. So, they're just completely unknown essentially to the big players, which is interesting in a sense.

Yeah. I guess we never talked about size. Is there a size range of companies that you're looking for or given your flexibility, are you looking more up and down the size range because you can't and you're not forced up in markets?

Spencer: Our target size is 1 to 5 million of annual owners' earnings. We're in a fortunate position that we can go a little bit higher than that and we're in a fortunate position that we could go lower than that, but I think that 1 to 5 million of annual owners' earnings is our sweet spot and we've been seeing a lot of traction of companies in that size range, and so, I think that's exciting for us and we're in a fortunate position where we're well-capitalized to be able to execute on that strategy to do acquisitions of those sizes. Is there a topic you've been dying to talk about that I haven't asked yet?

Chris: How about what we would do with the company once they've joined? Once we acquire a company and they become part of Empowered Ventures, something that we are excited to do because we've already done it at TVF is, not change anything about what makes that company special, but start to incorporate elements of employee ownership into the culture in ways that the people will probably be really excited about. Whereas a lot of times when a company gets sold, the employees are quite fearful about the future and it probably takes a while for them to get comfortable with a new owner.

We're excited to be able to go in and we have pretty much a system of processes and approaches that we can bring to the table that will onboard them into an employee ownership culture and environment that ultimately I think will bring great results to the business. So that's something that we bring that's truly different, I think, in terms of what happens to a company after it's sold.

What are some specific steps perhaps or best practices you bring to companies to help show them that that, that ownership they have in the company is real and they can act on it and they are direct beneficiaries of it?

Chris: So, a few things come to mind. One is we'll definitely create like an ownership committee, where you put a non-management, non-leadership from different parts of the company. They volunteer to join a committee that has responsibility to promote culture engagement. You give them a budget and they essentially do a lot of the fun stuff. They plan parties. They make sure people are having fun at work, but also, it's something they do is to educate everyone about how this really works. So, we would go through a process to educate them on how an ESOP works, and then they take ownership of that and going forward, they educate new employees, like what does it mean to be an ESOP? So it'd be that that engagement group, that committee that would help new employees understand what it is that they're getting into and why it's a great thing.

Outside of that we do other things that a lot of companies are doing now, but not everybody but like an employee engagement survey. We use a pretty new platform called Amplify that's based out here out of Indianapolis and it's a really modern employee engagement software measurement tool that provides just terrific insight into the business, so we're able to manage on a quarterly basis our engagement levels and drill down and understand what's really happening amongst our team, amongst a whole litany of different categories that drive engagement, essentially.

So those are just a couple, but it's really all about making sure you're eliminating that top down perspective. I mean, sometimes it's even just symbolic changes. When I first took over TVF as President, we got rid of the Vice-President and President parking spots immediately and it just sent the right signal. I mean, we got a fair amount of feedback on that, because those had been there for 40 years. It's just stuff like that. You just look for opportunities and ways to say, "This really is a new environment now, and everybody has an opportunity to step up and be an owner in a way they didn't have before."

I know we've talked about symbols a little bit before, but what are some other symbols perhaps within Empowered and then TVF that you've been able to change towards more employee friendly or employee ownership base?

Chris: You put up signs everywhere talking about employee-owned. It's propaganda, right? It's good propaganda. You just find ways to keep it top of mind for everybody. In terms of the symbols, I mean, adopting an internal culture, like maybe naming it. We haven't done this at TVF, but naming your culture, definitely doing the core values, I think that's critical. It might not be assemble per se, but actually developing what's acceptable from a culture perspective, that's important. Put up a flag, like we have an employee-ownership flag. It's just, it's embracing it in every way you can think. And in some ways. It's like patriotism, right? You have a flag. It's something you try to develop as the way people think about the organization they're a part of.

Thank you both for coming on. This has been really fun. I'm glad we got to finally do this. I know we've talked a little while back and forth about doing a podcast of sorts, so this is great. And I'm glad we got to go over the ESOP model, too. It's one that I've been really interested in. So, thank you both for your time.



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