In this episode we explore another very important section of the ESOP site visit presentation - “The Customer Overview.” Along the Journey to an ESOP, sell-side advisor with the the company’s team are presenting the company to the trustee and valuation firm.
In this episode we explore another very important section of the ESOP site visit presentation - “The Customer Overview.” Along the Journey to an ESOP, sell-side advisor with the the company’s team are presenting the company to the trustee and valuation firm.
[0:10] Hello world this is the theesopguy we are on a journey to an ESOP and.
[0:18] I want to start off with today with this and I'm super excited about it I know you will be too.
[0:28] It's breath.
Just like her hair is as red green blue many different colors with our people they chose to do away with all of.
They created sameness if we were different we could be envious angry consumed with hatred.
We need signatures not to think oh I can certainly agree it's still it's all so beautiful.
[1:01] It's all so beautiful.
In so is this topic this topic is today a continuation of our last episode under we called Rudy.
And I really thought I was going to do kind of like a series of football movies but to be honest with you I kind of just wanted to do this one because it just it hit me.
Some level of flying back from here to there.
[1:26] And the reason I'm in this series we're going to talk about site visits ESOP site visits which basically happens during the ESOP process what happens is we orchestrate a meeting at the company's location, assuming we have a physical location the trustee the valuation firm sometimes the attorneys show up with the sell-side advisor with your team.
And we walk through a meeting and of course part of that is to really understand for them.
Your company and there's a purpose behind it all and not only understand the company of course that you really do exist I mean that's kind of like a minimum of course.
But the point of the site visit its it just gives us this opportunity to explain, how everything works so in Rudy what I was talking about was really getting into the industry overview and how important that is you know as part of, the agenda of items in so because we have so many different things will really want to get into today we're going to talk about, the company overview which is really a segue from the industry overview so I'm excited to go into that, and deal with what sort of things should you expect a love this I love this coming out of the gate with the giver which you might have recognized already as the movie of choice today that we'll use, to connect the dots between what we're really trying to talk about.
[2:51] And one of the things I love about this movie if you've seen it if you have it I really highly recommend it and whether or not you will watch it but they use this terminology all the time called Precision of language.
And in this community of people they're very kind of.
Serious I'll talk a little bit about that as we as we go into you know really getting into the company overview section but, they're very serious people and they always trying to say all right you know I heard what you said but use Precision of language we're going to do that today and I kind of wanted to just play off that a little bit and that, I think it's really important.
That as we think about the ESOP world or in the community of people which really exist in two categories there's people that are ESOP professionals and there's companies that, you know either our esops with people in it or there's companies that are looking at becoming an ESOP.
And that's really the point of the journey to an ESOP it's really designed as a podcast to help those people that are thinking about becoming an ESOP with a Precision of language of something that you can actually understand, that's the that's really the nature of the podcast is trying to create create a resource so that people can, you know look at something as simple as this four letter word ESOP and start to fill in the blanks for themselves whether or not this makes sense.
[4:14] So that's what the podcast is all about if you're new thanks so much for listening today you can check us out on our website at journey to an ESOP.com.
You can leave a comment there or question if you want we get those all the time and it's really helpful to kind of shape the.
Content and also the direction we're going with the podcast as well for those purposes, if you like the podcast as I say all the time please rate and review the podcast give us a five star rating at whatever platform you're technically capable of using that's always helpful for others if you do have people you're like you know my buddy down the road, is looking at an ESOP turn them on to the podcast because it might be a nice free resource for them to start understanding I know some people jump in and start reading books on it.
They start looking at all these different conferences to go to but this is something that you can easily listen to in the car and I always kind of think of myself as an unbiased objective person I was thinking about that today.
And I guess as much as much as I can be you know we all try to be unbiased but you know it's really the sap through what I how I see it so keep that in mind I'm just trying to be honest I am, I definitely see there's this great opportunity for people to transition their business and there's so many great things about it.
Anyway so I encourage you to keep listening as we go into the topic today.
[5:41] So I love the movie this is really a lot of fun because it's a futuristic Utopia Society right and there's a lot of these kind of movies and you know I think mankind always kind of realizes that.
At some point we just know deep down something's not right right something's not going to work I've got a lot of problems in this world a lot of issues a lot of social issues a lot of things that that we may have different opinions on.
But ultimately it's not a perfect world Utopia says hey we can make it a perfect world if we do these things in The Giver what happens really is, everything starts off black and white right you mean Cinema photography Wise It's like black and white.
[6:23] And there's a sense of peace and Harmony but there's something missing right of course the color, and there's something missing in the this the relationships and the awkwardness of the family so you pick all that up and then it moves this into, some of the characters and the main character is this young man named Jonas who becomes everybody kind of B is given a job to do, so he actually is going to be given this job to be the remembrance or the historian of the society and all of this information is going to pass from, The Giver who is Jeff Bridges Place phenomenal role and I can't tell you Jeff Bridges is great in everything he does by the way so this is not a movie podcast but I just wanted to say that.
But what I liked about this as he as he starts to kind of give them in his information is in the scene that we just discussed or played.
Everything starts the color starts coming out right the color of this apple.
He's never seen color before and it's hard to imagine that might that might be that might be possible but their engineering jeans and things like that and.
[7:29] He's able to see color and what's really cool is that, they start seeing like he start seeing the world for the first time in different ways now this is a you know a way Big Stretch but again I'm taking it from the standpoint of what what is what's going to happen in the company overview right.
And.
When we talk about the company and when we started off talking and Rudy we started talking about really helping the trustee and evaluation from understand.
The business model and how the industry works and where they sit in the industry and what are the trends related to customers and a lot of those things like that so we're framing in the first part of the presentation in the site visit.
For the trustee and the valuation firm really not not sameness but the specific model of business that these guys operate that the company operates in.
[8:23] And how they are different so not same but how they're different so we really start the process in the industry piece as we segue into the customer overview there's a sub there's a couple like I would say high level, goals and objectives we're trying to accomplish in the presentation.
And we're going to break those down as we go but let me just say for the most part we want.
Leverage what we just talked about with this unique business model and the trends and everything else at the company the customers and the geography of the of where the company is doing business.
And into the who the company really is so in some ways as I connect the dots in the movie.
We're bringing color to the equation and what I mean by that is without the site visit the valuation firm.
And there are people within the firm their job is to is to is to Crunch the numbers their job is to get into the details their job is to.
[9:28] Really understand you know the trends and the historical Trends understand how the forecast works and all that, without the story of the company there's no way you can really provide that type of color so that's.
Again in the differential the differentials or the or the diversification or some of the things that are important so it's the you know we're going to start off in the company overview of who they are right and, and in some cases it's just a real good overview they've been around for this many years and you know it's kind of like.
Just just fax features of the company and I have had this many people there they've been operating in these different geographies there, the kind of the approach that they're taking is this and just all of those things start to become the who of what they do.
There might be things that they're known for in this so as we go into it they may have, specific Awards in their in their industry they may be known for you know a certain type of service or product that's unique and different so we're going to continue to focus on what's unique and different about the company.
As we work through that part we're going to we're going to want to deal with a little bit of at the front end of this conversation and the presentation we're going to want to deal with what I would say our cultural, realities to this company and if I pause there for a second I wanted to stop and say.
[10:58] Why is it important you know is it such a soft concept and we think about the cultural reality the company.
[11:06] The difference between a company just selling everything that they are to a strategic buyer.
[11:14] And this is where I'm going to sound may be biased so please forgive me is that the buyer the seller at this at this point.
They're not that concerned with their culture because if they were really realistic they were really.
[11:31] Forward thinking they would know that their culture will not survive most likely.
I can never say never but most likely the culture that they've created won't survive why is this important in a site visit.
Why is it important in the customer overview to deal with the culture.
[11:52] I think that if I quoted something from the business books I would say culture eats strategy for lunch.
So this is a this is one of those things that I would say as a presenter of companies I want to I want to talk about the culture especially in the environment of doing an ESOP site visit because.
Culture eats strategy for lunch and what does that mean I mean even what do you even eating for lunch there so what that means is that a company with a powerful culture a culture that is, compelling to the employees that they just want to like get to work Monday morning because this the place is just so phenomenal right if they don't want to I mean they want to go home of course and see their family but the bottom line is they just love what they do, and they love what they do not just because of the work because we can all work at different places but they love what they do because they're the company as about something.
It's got either the purpose that they've been looking for all their life it's got the people the relationships the camaraderie the teamwork the the value system that resonates with their heart.
[13:01] So you can see how this is kind of like a little bit soft in a sense but.
Behind all that is our company's you know secret sauce right what did what is a company that does exactly the same thing as another company do, to differentiate themselves if they have a powerful culture people love it and they're highly engaged.
Then boom right they can do so many things and they're a competitive force to reckon with.
[13:32] How do we start talking about culture and what and why it why hopefully ideal dealt with why the why is because the trustee in the valuation firm need to understand now they may dismiss all of that because they the trustee and evaluation for a might just be you know so.
You know into you know the just two numbers Jack give me the numbers right but I'm going to say in the ESOP world that's probably not going to happen.
You know and let me pause for a second if you're doing an interview for a trustee and you're figuring out what trustee you want to do business with definitely don't pick somebody that cares nothing about the culture because esops.
In the nature of doing an ESOP is thinking about the culture of the business re being retained and having that continuation of what really good about that culture only now being enhanced by the value of the value proposition of being an employee-owned company.
[14:24] Some of the things I do to straight illustrate the culture it might be look he let's just talk about the mission of the company we are on Mission this is what we've done this is what we're doing this is what we're going to do, we are vision is to cast into this Market to do something that is.
Compelling and unique and value added and this is where we're going to go our core values the drivers of decision making, are these things and maybe some companies have adopted the idea of I want some, core value statements that are rememberable are memorable in and I think that's a real value to really explaining to new people that come into your company so so I would say definitely, dealing with core values and mission statements are really important and segue those into the culture.
As opposed in an addition to that.
[15:21] Segway those into the Y right at this point this is a good good time to talk about why are we doing any sap what's important about an ESOP why is the owners thinking about doing anything, to the trustee in evaluation firm so they can understand that that is going to be a question in the site visit like why are you guys even doing this.
That's a good opportunity to tell the story about how you got to where you are in terms of your own journey to an ESOP.
[15:47] So those might some companies might steer away from that stuff but I hit that head on and I love I love talking about that.
And I also like as we do it in the presentations if we have key managers involved not just the shareholders involved I would love to get like, not just take their direct take on it but maybe the indirect how they come across should exemplify if we were judging that.
Presentation their words their mannerisms their approach to what they do should resonate with all the cultural things that we just talked about.
[16:23] So as we do that and then a good opportunity now is we've kind of set some the stage we've moved past things that are that are, again if I'm just being just kind of like alright that's kind of fluffy it's a little fluffy but really important now we're going to get into the concrete things in one of those things is just doing a very very good overview of the story behind the company.
Usually this is best told by the maybe the main owner or the main owners.
And you know founded the company X year how did we get from one Milestone to another Milestone and how important is that, in terms of the history that helps to kind of paint the story between the beginning and where we are now because, the ESOP transaction has eventually is just so we talked about it for what it is is a beginning.
It's not the end even though the transaction might feel like hey were we've just completed this transaction or I'll you know tired and everything else, so the Aesop's or the company's story is important because some of the things that they've done in the past for the milestones.
[17:30] Can be duplicated there might be in the in the in the story let's just say for instance there could be hey we acquired this other company we integrated that company so I'm demonstrating that the company has proficiency with with MMA as a growth strategy.
Could be we open Geographic locations so it could be that we demonstrate that we have the ability to open new locations and successfully you know transition nose into, the whole Corporation as we start to grow the company that way could be we hired a key person, we on-boarded them directly they on-boarded a team of people that's how we got to the, success we are today so you can kind of see there's a lot to talk about with that and it needs to be really.
I thought through and discussed obviously there can be things in there that are just.
[18:19] You know Milestones or things that are important but you have an opportunity with the story of the company in the timeline to really get into some specific value added Concepts that help distinguish you.
And outside of the sameness button that we were talking about with the giver distinguish you in the marketplace.
[18:40] What are the things important to do is is discuss the geography of the business in some cases.
It's as simple as we have one office we do business you know first off we have one office all of our employees are in the same office or we have, 15 offices all over the us or in other countries or whatever that is so Geographic locations are going to be important in that there's going to be, where do you guys head what is your headquarters what's the real estate six uh situation look like so normally, in this part of the company overview the trustee and evaluation firm are going to want to understand the nature of the of the leases in those locations.
Specific to if there's an outside LLC that owns a real estate leases at back to the operating company that is owned by the same shareholders that are selling their Esau.
Within that the question might be hey or is that a fair market value lease.
Of course it is because we're really good people and we would never over burden or company with that kind of additional cash flow.
We'd want to we're going to have to prove that out and due diligence by the way so that'll be asked some of the other things about facilities are, are you busting at the seams do you need a new location to you need a new Warehouse to you you know how do you grow your your geography footprint if you're going to go into another.
[19:59] State or another location what's going to have to happen are you going to have to, put more capex into leasehold improvements so we're getting into the kind of combinations of things that will will connect back into the financial highlights but we're only kind of planting some seeds there for to think about, so they're going to want to know where those are and strengths are in this case.
If I have more Geographic locations then I have the ability to build my business around those locations so that I'm not.
[20:32] Limited so as a specific company risk item within the valuation obviously if I can only do business within this one G small geographic area, and if something bad happens, economically in that geographic area then I'm going to take a hit on that right so but I have diversification of geography that's going to be a plus so so there's things to think about on that and if it's one location no big deal, do you do business in other locations do you have you no reps in different places do you Outsource.
Some of the functions from a from a supply of labor standpoint in other places as well so just kind of thinking about those things as they as they cross over into your thought process.
[21:16] What are the important parts and we're kind of in the who you are stage still I mean a lot of this in the company overview is the who you are but you might have a very simple.
Corporate entity structure and or you might have a very complicated corporate entity structure either way do some work present that to make sure that everybody understands what you're selling.
In terms of the stop now an ESOP transaction is a stock sale and so in some cases in your planning you might have had to, put a holding company structure contribute these entities to the holding company contribute shares of stock to this this entity so so there are things you might have to do but you do want to present clearly, What entity are you selling and what's in there is there are there related parties outside of the entity that are not part of that and that can get into some other things that, that really are part of the site planning side like for instance control group tests where you have multiple entities owned by the same shareholder shareholders, and you want to make sure that you're you're adopting the ESOP playing correctly and not violating any problems with it risks so so simply here just just go through the ESOP, at the entity structures that you have clearly identify what's type of entity it is we need to be either an S corp or a c-corp.
And the transaction or will be at the time of closing.
[22:39] One of the sections I think is so important to say who is this company and part of this is you know when we think about this sections that we're going through just keep in mind, everything Connie can work differently it's not always do exactly this but this will be helpful I think employees are especially so important so get getting into who your employees really are.
Not presenting a payroll census but the idea of like if you just broke down the in total payroll or then total employee.
Population and said these are the people that do this this and this and they're in groups and different groups if you you know have some you know.
Major advantage in your industry when it comes to employees like hey we are very, good at hiring and retaining people we have a history of keeping really good people we have a history of also managing our people in a way that we don't have people that, we do Transition people out of the company in the event that they're not performing, so you have to present it from a from who they are and you really are leveraging this asset of people in a.
[23:51] Or thinking about the valuation firms thought process.
So come back to that keep in mind that that most of what we're presenting is for the valuation firm to understand.
Where to put you so if I have a very deep deep bench of people that have lots and lots of talent highly-skilled lots of Education lots of this lots of that.
Man I'm silly not to present all that right so I want to I want to give all that if I have a an unskilled labor force maybe they have tons and tons of experience, are not unskilled uneducated labor force maybe they are not they don't have master's degrees or or college degrees but they're very very good at what they do.
And they're super efficient if you've got a great training program for instance or so a lot of those things are opportunities for you to present in the scheme of things.
How important that is as a company coming back to the perspective on culture and the longevity of the business how important this is for a sustainable company in a sustainable ESOP going forward.
[25:02] So that segues as into of course now getting to talk about the key people now the key people being those maybe the highly.
I mean we can say highly compensated people or people that are department heads you might have a you know a top three or four c-suite group of people you might have, some other people that are just really tremendous important to the scheme of things.
The more important they are what we want to show within the key person part is first off they're going to ask for resumes on every single person.
They're going to want to know the tenure of those people are how long they've been with the company they're going to want to know.
What is the you know what is their role in the company, and in this process is really going to be helpful for you to have them at the meeting depending on the the capacity you have and, the timing you have it's going to present way better if you're if they're actually hearing from those significant department heads and feeling the impact of what I would say are these quality people because that is one of the most leverageable, Assets in they provide a sense of value to the whole Enterprise as well right.
But we want to make sure we do well is try to understand from the trustees value and valuation perspective there.
[26:24] Buying the value of the business in the in the future are the business that that's going to produce cash flow that that's going to create this the value of our business so the people are an incredible important element of that so there might be things within that to talk about.
[26:39] You know if you do have a key position that's not yet filled, in part of that then with segue into a conversation related to your succession plan, now everybody's in a different Spectrum on the succession plan so the owner of the company might be completely at one end of the spectrum completely out of the business and they probably never they mean this case they hypothetically they never come in.
Everything runs like clockwork they don't even need the person at all they're just there to collect cash flow from the company.
[27:11] Or the other end of the spectrum is that person's so integrated in every specific aspect of the company if they died there would be our got hit by a bus and whatever there would be problems right so part of that is they're measuring the some risks that are related to the companies from, from a how are you doing with your succession plan and with an ESOP the cool thing is we're not.
We're not overly dependent on that we just want to know like we don't absolutely have to have somebody completely out the door so I don't want to take that like make you think that.
We can have somebody on the other end of the spectrum but we have a very good succinct plan this is where we want to present it hey we have a five-year plan for this key person who's an integrated, into the operations or share their main shareholder but they're starting to work less days this is the person they've identified as their successor we're working them into the equation and so I think that just needs to be said in the in the meeting, and it's a good opportunity to to look at that.
[28:13] So within that you can you can do a lot of things within employees if some sometimes people measure engagement for instance sometimes people have certain you know statistics that they can look at like within, the different departments that are different companies that will help, the kind of help to see how the company manages all that so so keep in mind as we go through this company overview, process process process process very important we want to keep dealing with how the company actually functions without depending on the individual to show up that day and just have, this this incredible knowledge nobody else knows how to do it right so in order to mitigate that risk.
[28:56] We build business processes and we use and leverage and rely on business processes so that they can produce a ongoing result, within the company and so I think that's really important that as we get to each of these different sections of the company overview that we try to weave into the conversation as much as we can, the detailed processes that are very important.
Now I know you if you've been listening us for a while you've heard me kind of speak positively about traction EOS as a great.
Tool for some companies to adopt and incorporate some business processes that what's nice about the traction EOS is it's very helpful.
[29:40] To apply an integrate and get up to speed communicate what you're doing build some processes that you may not have had in the past, and if you're anywhere on this journey to an ESOP whether it's three or four years down the road or its next year whatever I would highly advise you to use something.
That helps you in even if it's just a consultant that helps kind of work through business coach that works through those things, because processes as culture eats strategy for lunch processes will be leverageable throughout the company to where you as a buyer, an evaluation perspective.
They don't have to rely on the human risk factor of somebody having some issue or meltdown or losing some key people and that now that leads to what right so.
So keep that in mind as we think about the the.
[30:33] As we weave through the this this presentation is going to be important to do that so with all of that we're going to end up I wanted to kind of cover the whole company overview but we're going to end up having to do this in part 1 part 2 sections and, when I want to do next is just go into you know other categories within the company overview and and I guess this really kind of makes sense as we think about it because there's this is really the longest part of the presentation by the way, in the site visit and as you as you contemplate all of these things I just want to kind of encourage you that there's plenty of time to plan for this.
And your advisors your cell site advisor should really be leading through the process of preparing for it now I hope you get out of the podcast series here that we're going through, is you know really if you're in this position right now or you're going into it just to help prepare your mind and you might have your key people listen to this as well to prepare them for what's coming up.
Because I think this is such an integral part in an important part of the ESOP process, so as we think about the the close of this I wanted to go through this real quick you know.
Joy raw impossible beautiful feeling of love your son you felt.
[31:53] Music.
[32:00] So this is right at the end of The Giver and there he's kind of racing to get out of the town if you've seen this movie it's really great he's sliding down this thing and he's got to get to a certain part which I don't really understand that the technology of it if he gets there everything changes for the whole company and I wanted to leave you with this on this episode is if you get there and you put color and everything works really well everything changes from, um just giving financial data to these valuation firms in the trustee Everything Changes because they can actually now see with color how everything really works and that's the goal, of this section I'm looking forward to the next piece that we do but with all of that thank you guys so much for joining and we will see you on our next step on this journey.