EP21 - Industry Spotlight: Creative Agencies – The Fraction Collective

In this episode, Jason Miller interviews Miriam Agrell and Kavita Vora from The Fraction Collective. Throughout the conversation, they highlight different ways that creative agencies and ESOPs intersect. The group discusses the reality of succession planning and how ESOPs are an attractive option for business owners who are looking for an exit strategy.

Transcript

[0:09] Well welcome everybody to the journey to an ESOP and Beyond podcasts uh where we explore everything ESOP and make that information both available and accessible uh I'm Jason Miller your host today and I have 2 very special guests uh and what we are going to be doing and talking about today is a little bit new. We are doing an industry spotlight and for that industry Spotlight I've asked my friends from the fraction Collective uh to uh talk with me and with us today. Uh about how the particular industry that they serve and esops could be a match made in heaven. Uh or it could be something that needs to be explored individually and how all that stuff's going to work out so we're we're just going to have that that conversation today but first I would like my esteemed guests uh to say a word about themselves and their company.

[1:05] Marion awesome thank you Jason um as as esteemed guest number 1 I am Miriam Miguel I am 1 of the founders of the fraction Collective. Uh I come from a 20 plus year career in creative and production agencies and we founded fraction.

[1:25] Coming up on 2 years ago we serve creative and production agencies doing strategic. And Operational Support and thought partnership for boutique agencies who are kind of thriving where they are right now and thinking about what's next. Um and Kavita Vora is 1 of 1 of my partners at the fraction.

[1:46] Hi um everyone hi Jason thanks for having us I'm just adding a little bit to what uh Miriam said about what we're doing I think um. In this work on strategy and operations uh that we're doing in the arena of creative and production agencies we're finding uh that succession planning uh how we met you um, comes into the conversation once we dig into a little bit of tactics and a little bit of strategy and a little bit of Road mapping. Naturally uh the longer term comes into focus and um there aren't just a number of players uh people that we know, that love this world of of creative and production and have built uh wonderful businesses around their love for the work and are now in that position of thinking about what's what's next um and it's it's exciting to explore that question with them.

[2:43] In light of what's next I do want to deviate just for a couple of minutes and so as as listeners to the podcast you know with every guest that we we have on I get a 2 for 1 today usually I have 1 1 guest but you you do whenever we have someone on we like to ask the question just so that our audience gets to know you a little better of what what's your favorite movie and why.

[3:10] The Y part's the most important part yeah.

[3:13] Oh my favorite movie um an interestingly enough I am not a huge movie person but 1 of my favorite films is. Kind of an older film now it's called Gosford Park. Robert almond film um and what I I mean it's got beautiful production design and kind of amazing actors in it and Maggie Smith is in it. Um but I really love the the kind of Upstairs Downstairs quality of it how you see the different levels of the worlds all. All kind of working uh. Well it's sort of in concert with each other but how are how are those people presenting themselves in the world and then what's really going on and it's just it's like this beautifully done exploration of that and it's also a murder mystery which makes very entertaining.

[4:03] Very neat adding that to the list I have not seen highly recommendand Kavita, oh for me that's really a very difficult question I I love the movies um I especially in in like the years of like 16 to to even like 35 I think I watched in the theater like for movies a week you know something like that um.

[4:29] So it's difficult to pick 1 I'm gonna today because it it's summer um while strawberries uh the ingmar Bergman film came to mind and I I like anything almost anything done by Bergman there's a quality of uh Scandinavian countries that's like this beautiful austerity that um. Appeals to my OCD I thinkum and there is this kind of leisure and that's film with the light in that film that has always resonated um, uh with me it's like this combination of uh maybe it's disciplined Beauty. Um that that I really appreciate um so yeah that's the pick today oh now now I have 2 movies to watch so I have to my list that's really why we do this because I've been binge watched everything that I've felt interested in and need some new content for that so that that's you um now Kavita you had a a very uh important statement and kind of highlighted where we want to start for for today and when you're talking about what's next uh it naturally comes up.

[5:42] Of you know talking about strategy an options and how how do we think about the the future because that that's really what the question is um for the creative industry as a whole do you see um Kavita or Miriam a typical kind of answer to what when you asked the question and what what's next uh or is it kind of all over the board.

[6:08] I think it's sort of all over the board um. You know there is a lot of consolidation that goes on in this industry um it's quite cyclical. You know you'll see a a rash of sort of the big companies swallowing up the small companies and and that will have some success and then people will Splinter back out again or or new you know Boutique agencies will will kind of mushroom up. To fill that space um. I think the folks that we particularly work with are are those that that do serve. Umthat serve corporate clients uh. In a way that's a little bit off the beaten path it's like a little like 10 10 degrees off of what might be typical that are really, interested in working with clients who are interested in doing something different and you know where creativity is really the the the mark of Excellence. Um you know it's not the the road more traveled is really not what they're looking for and there's nothing wrong with the road More Travel that's just there is a. There is a community of agencies that is really interested in doing something different and I think the question that that we come across uh in our work with our clients is.

[7:32] How do those agencies those Boutique agencies uh in the creative and production world. Really think about preserving um and and nurturing and even growing that which made them unique in the first place. Um so there's kind of some behemoths some real some very very solid big players that maybe pull in pull in other little agencies and then there's really strong community of Boutique agents he's doing really interesting really different kind of work.

[8:02] That element of creativity and culture uh because I I think it would take a certain group of talented people thinking similarly off that that beaten path. That it would attract more of the same but would make it that much more difficult to to maintain do you find that to to be true.

[8:22] Yeah absolutely I think you know the agencies that really thrive in this space are the ones that can. Put the the creativity and the people and the culture first with the understanding that the prophets will follow right and I think Kavita you and I have both seen this over many many years that is the way it works when you're when you're taking care of your people and allowing them to do great work it it really is a recipe for success. Um and and that success kind of breathes breeds more of that it pulls people to you it pulls incredible talent and it pulls interesting clients to you as well.

[9:03] Yeah and the way of that incredible Talent you know these are folks that are coming to a corporate world from very artistic backgrounds creative backgrounds filmmakers theater folks um and so it's it is really about the right amount of process because, they will quickly turn and run from too much process right and so that's really what we found in uh and with the agency that we worked with for you know uh together um at for a number of years is that. In order to grow yes we needed just the right amount of process and there was a Tipping Point and you had to be very careful about how you introduced it and and address it in the why with regards to the culture um and and then provide that support so we could grow you know and and double and double and and do that kind of staying for for the company that we were working with but um in order to keep those people uh attract those people and keep those people I think it's it's sort of yeah how do you get. Uh 80% there with 20% of the effort when it comes to process because they're going to they're going to run they they they're independent folks that have done things on their own and have been drawn to the camaraderie of the collection but don't want the structure of it.

[10:25] It's a really important thing that you mentioned around the value of process um do do you think. Uh it's I don't know that it's that chicken or egg right you have have to have the process in order to reap the reward of of that streamlining um. Life cycle of a creative agency maybe talk to us a little bit about that and I've heard you know large large corporates and then boutiques uh and then the success being magnified in those boutiques by use of process, but then there I I imagine that there's a smaller subset of of the industry that's kind of on its way up to success to talk to me a little bit about the landscape and the life cycle of of a creative agency.

[11:13] Sure and and maybe I'll start uh with the landscape question um because the the landscape has really changed its uh you know. It is and age it's an industry that is kind of coming into some kind of maturity right. It's everybody knows about experiential and stuff like that it's not some sort of you know. Side hustle that nobody knows about anymore um so it's an agent it's an industry coming into maturity. It's also changed a lot because of kind of postco realities right there has been a fair bit of consolidation because there was a lot of struggle. During during the past 5 years there's been a real. Uh uptick in oversight by clients procurement departments and stuff like that there's a real understanding. Big big checks are being written to these agencies to support corporate initiatives and so there's a lot more eyes on the work by procurement. By corporate legal uh. Departments and stuff like that so there's just a requirement for a little bit more structure um things like ab5 you know laws that govern who's a contractor who isn't a contractor have really changed the way these agencies. Now we add on to that you know the rise of AI. The uncertainty of cost brought on by tariffs travel changes extreme weather right it's a it's it's an industry that's.

[12:41] That needs a lot more I think um foresight a lot more strategy maybe than when we started in at 25 years ago.

[12:50] Um and that. And that leaves these Boutique agencies these up and-coming agencies with a little bit of a difficult challenge in front of them you know how do they figure out how to uh. How do you uh tune their process their structure to address those realities that kind of the requirements of the work and also. Uh take into account to honor the needs of the people who bring who bring the skills who bring the creativity that Kavita was talking about and I think that's. That's certainly where we come in at fraction but it's also where. Um kind of this third factor of Founders who are maybe 55 maybe 65 thinking about what's next for them. How our conversations with Founders ultimately do come around to ESOP. As as a potential way to to do a little bit of all of that and still give the founder. Kind of that you know that exit that they're looking for after after many many years of taking the risk and putting in that The Sweat Equity.

[13:59] We've had some great conversations over the last number of months and what uh.

[14:05] What agencies would most find attractive about about an ESOP I have my guesses I I think I know what they are but I'd ask you from from your perspective in the industry what if you could 1 2 and 3 the qualities of an ESOP that are attractive what what would those top 3 qualities be.

[14:29] The top 3 qualities all right I'll do 3 and then Kavita maybe you could reorder them or rank them some other some different way, um I think 1 of the most interesting things and it sounds kind of.

[14:43] Esoteric and wonky but it's continuing to control your own uh risk tolerance. Right and it's and that doesn't sound creative and that doesn't sound like experiential but really um. A creative agency thrives, uh and the work thrives on the ability for everyone to take appropriate risks in service to the project. And when you bring in external funding when you bring in investors the. Responsibility that you owe to those investors really changes the equation about what kind of risk you can take and you no longer can put the project first, so to me 1 of the most interesting things about an ESOP is you know you continue to keep the ownership with within the organization. Which means that collectively you can continue to make your own decisions about what's right for the project what's right for the people what's right for the organization in a way that I don't think you can with without outside investment with Strategic investment. It's really insightful and you're right I don't think anyone would say that controlling risk would be the the number 1 answer um but it's it's fascinating and and how.

[16:04] Use structured that right because you you have to have license to be creative but.

[16:09] If you don't necessarily have that that license then what happens to the creativity is the question that uh no no 1 asks right unless they're they're found this way so that that's number 1 that that was that was great that's number 1 um I would say number 2 is really that on day 1 after the ESOP. The work just continues right there is and I am not going to say that nothing changes because of course stuff always changes but really again because the ownership is still within the organization the way you work, on day 1 of the ESOP is very much the way you worked before the ESOP and again that supports the people and the culture and the kinds of decisions that you take and the way you service your clients there's not some seismic shift that happens at the time of transaction and I think that serves both the people and the culture which are so important to to what makes an agency great.

[17:08] So that's 2 and then I think 3 is there there is a quality of governance about esops that I think is very healthy for growing agencies, right and again an agency can kind of bring on more or less of that governance um. Depending on on kind of how they structure things who's on their boards things like that but agencies can really grow and thrive. As kavitha and I had the opportunity to see with just the right amount of structure and operations and so the esab does require some amount of that which which I think serves agencies growth into and evolution into the future. So that's a that's 3 and the Goldilocks level of process is what I'm hearing that's exactly right.

[17:58] Um yeahand I think that I mean I think the order works right um there's there's this other piece that I think the ESOP um allows for I mean I guess any kind of transition or transaction would do this on on on some level but with the governance with this. Ability of the organization to be the same the control of the risk tolerance there's this kind of then natural ability of the founder owner leaders to develop the Next Generation, um and it can be done then at a pace that's comfortable for the organization and is enforced um.

[18:39] Uh you know and isn't isn't sort of tied to this again the numbers and earnouts and then that desire to get out because you never wanted to be part of this bigger larger organization and uh bottom line answerability you know our accountability because you were the entrepreneur and we started this company and wanted to do their own thing um so I think that that fourth piece might be the ability of the owner founder to stay involved for again just the right amount of years post uh transaction rather than some forced equational kind of function you know um, I really like to say I I just getting just doing a deep dive on esops in the last year and just kind of loving a lot of aspects of it I think there's this way, the the the you know Economist in me likes to think about this util the utility functions and the optimization of utility functions instead of kind of the maximization of profitability and it is a structure and governance and and and uh Financial like instrument that.

[19:50] Lets you fine-tune things a little bit more, um subtly uh in a nuanced fashion then uh simple transaction you know that is about uh maximizing some bottom line for any number of stakeholders, I I agree I I often think that 1 of the most underappreciated elements of an ESOP is exactly what you're describing with it allows ownership. To transition at a pace they're comfortable with with.

[20:22] Getting the right people in the seats in the right seats right um and there's always pressure there's always business pressure to do that but there's no outside pressure to to, so that's imposed on an ESOP transition for that and it allows for this natural.

[20:41] I I was the owner and then now now I'm I'm on the board and still a CEO but I have time to to recruit and to coach and to train who those individuals are going to be um and then I get to step away functionally from the the day-to-day executive management role but still have influence on the board that that mandated governance that that an ESOP brings to really give support and stability to the framework and if I've I've heard you both correctly in our our interactions before and and even today it's really if the structure is there then the freedom to do what the the creative agency needs to do and is best at is is going to be enhanced because of that that stabilityyeah. And I and I think that's you know that is kind of the the multiplicative effect or 1 of the pieces of the the the way an ESOP can be a multiplier for a creative agency right, it's allowing the succession it's bringing in the the Goldilocks level of of governance and structure and it's it's keeping the way of working.

[21:52] Uh constant. Uh through transition rather than a a shocking you know kind of a shock to the system change that might happen with other kind of transactions and ownership changes, um to me I think that's really what makes ESOP particularly interesting for these Boutique agencies for founders of these agencies that are looking for for a way to keep what was what's been the secret sauce and also. Think about their own exit think about succession planning for for their Agency for this thing that they created.

[22:31] I think that's been 1 of the most challenging things for. Uh the the financial industry to think about in a transaction for a company if we just eliminate. The identity uh and stick to numbers and people and financials and facts then we have this this pattern that says here is a value. Uh that is owed to to the owners and there are only limited ways for them to exchange that value for real dollars and in that exchange uh it's not just a transition or a transaction but is literally an exchange of well now all the things that madethis what it was. Are no longer their responsibility but they also made no longer have the right level of influence afterward now when we we layer in the particular of of of the the creative. Requirement the the reason for existence of all these agencies you you can't separate that from the numbers but. When you look at well I have to do something with my ownership I I have towhether it happens to me or I get to choose it I have to do something with itum. The element of how do we maintain that that creativity has always been the key and what what's going to make it viable.

[24:00] How how do and what do I do with that because that's that's not that's not numbers that's not trans transactional that that's a massive issue because the value is created.

[24:14] Through creation uh in in very literal sense in all these agencies it has to stay or grow or become better. And how how does money and the monetary component of that. Potentially me mess it up I guess this is the question that I'm asking or am I laying that out writing in 1 of the the many challenges that that owners are facing in in the industry.

[24:39] I think you know I whatever they're the fact of value I think is both a very kind of cut and dry thing there are numbers there are ways that thing that valuations are done. And there is a way that that. We are seeing owners struggle with that because the the folks we work with generally don't have mbas they didn't start, with an exit strategy an exit timeline and possible buyers in mind that's not that isn't the kind of. Business that these Boutique agencies typically are. Um so it really is there there's a real push me pull you there maybe some of them founded agencies because they had been through some other kind of. Uh transaction early on and and saw saw what that was like and wanted to do something differentand yet.

[25:36] Either they will choose or something will happen and a a change will need to be made. Right and so we keep thinking about ESOP as sort of this third way right if 1 way is a private Equity investment, uh you know a holding company something like that 1 way is a strategic buyer right this ESOP is a really interesting Third Way that.

[26:02] That does square up to what's the valuation like all the same kind of conversations you have in in any of these other deals uh and.

[26:13] Because of where the ownership is at the end of the transaction really, has a very different kind of impact on the people and the culturewhere you end up more aligned after the transaction rather than less aligned ideally.

[26:30] And I think what we see also is that a lot of the founders owners that we are working with umstart with the people on the culture piece they very much wanted to create a place that was kind of a safe place for these artistic folks that are collection from all kinds of Woks of the world not people who typically want or can even go get a corporate job and have that kind of stability that you know a regular 9-to-5 uh might so. Often it is this collection of people who then stay and and for a long time and contribute in a big way to the growth of the company over time and there's this real desire. Um well there's a real practice of actually sharing along the way each year and the form of bonuses and and retirement savings um and you know.

[27:28] And and then this the ESOP structure kind of is like a more formalized way of continuing that type of um desire to invest in the people that are creating the value and and sharing um in that. That Collective value that's been created and not thinking that oh it's all my own and so you know again I want to get the biggest bottom line but rather how can I get kind of what I need and and also get some future like stability for these folks who might not have had that otherwise.

[28:04] You know I wondered Jason, 1 of the things that we've also heard if I can turn it around for a moment yeah this this myth that an ESOP oh my God it's too complicated I can't it's it's I can't deal with that um and I wonder you know we've had the opportunity to explore a couple of different ways that certainly it's not a simple process but could you maybe talk a little bit about the the myth that's out there about Esau complexity and what makes it an any business like a good fit for an ESOP.

[28:37] That was a a great plug by the way uh because that that that's why that's why this podcast exists right is that there is a lot of information and you can go down the Google rabbit hole of a Vsauce um and I I often say that that Google is not your friend in in that regard uh and unless it brings you our way and listeners thank you if uh it brought you here today um but me making the information understandable and accessible and a lot of that has to do in my opinion with context many business people have business contexts for, things whatever those things are and when we get into talking about esops it's I've heard about it I've I've seen it or I've Googled it and I have no context for what that entailsbut when we pull it back to, thinking about transactions well now I have a different context for transactions now I have PE or I have, a competitor or someone else in my value chain that's over here or I have my management team and I won't necessarily connect ESOP to transactions because transactions are more financial.

[29:49] Then they are anything elsebut and an ESOP transaction or an ESOP transition gets down to what are owners thinking about next and what are what are my options and am I thinking about that and when I get there how do I think about it inevitably at the ownership level the the stock is going to transition from 1 or a group of individuals or owners to a new 1.

[30:15] Or or multiple new ones and so we can boil down transaction outside of financialto fundamentally it's a stock being sold.

[30:26] So now we have another context of do you you know what do you know about buying and selling stocks well you have to have a market you have to have a price, and you don't want to pay too much and you don't want to get paid too little uh and so we start pulling these contexts together now I think about well I have the stock that's my asset, I should know what it's worth and in knowing what it's worth now I need a market to take it to. And when I talked to clients about esops it's we're literally creating the market for your stock on paper.

[31:01] And in that you have more shity of execution as long as all the rest of the terms are are agreeable which is again what price am I taking my stock to market for and then how does that get negotiated how does the paper determine, how it's going to purchase the stock from me and that's the other elements around ESOP is setting up, the arms length transaction so that there's you're following the the process agreements from the Department of Labor it's a regulated m&a transaction you've heard us say it here before on the podcast now we have that that idea of m&a and that idea of transaction in the right context but me as an owner I should want to know what's my stock worth and what am I going to do with the asset. So when I write it down on my personal financial statement what am I putting their for the value of ABC company how did I arrive at that. And I can put whatever number I want on that piece of paper but I need to take it to a market. Is that helpful does that make sense it is and what I think is really particularly interesting about that for agency owners is that.

[32:08] Incred we're creating a the ESOP creates a market not for the stock of experiential agencies broadly but for your company right it's not that you don't have to like Dress It Up and Dance it around on a Runway and kind of do all of that it's, a market for your company particularly right and it's and if you're selling to the buyer that knows you best because you're selling to the company. And that I think it's it's in that smalldifference of lens. Right that that you really can get what Kavita was talking about kind of an optimized value for your stock and an optimized outcome for the people who are going to acquire the stock because you know each other intimately you're ultimately the same organization.

[33:02] And that leads to 1 of the other comments that you made which is on day 1.

[33:08] The work is no different and when we talk with clients the process does take time and it is an emotional process. And it is a work process to layer in this this transaction this this ESOP on top of everything else that's happeningand the the weight and the space that it takes during that period when when it's when it's accomplished and the stock has been transitioned in into the Esau in in that Marketplace. You still have to go to work the next day. And uh that that's something that I like to remind clients about and point out that no no 1. Is coming in on that day and and making broad changes or uh saying well now it's it's my way or the highway. Um it it was my way. But now it's it it's functionally our way for us and Kavita you had said something very important which is how are we better aligned. Afterwards like how this this this aligns everyone afterwards better and that's a component of esops across Industries is aligning the thoughts and the incentive and the motivation. For everyone rowing in the same direction and it just picks up. So much power for everyone's benefit which is just another 1 of those many reasons that that I love being in the space.

[34:32] Yeah and I think you you talk about something that's really interesting this sort of day 1 conversation because you know it it's. It is clear on paper that the interests are aligned and I think that the the communication and the education both on day 1 and then ongoing for the employees is incredibly important, because you know another you know another 1 of the myths that out it's out there that isn't is that an ESOP is actually uh an employee Collective a cooperative and now you know Miriam from accounting gets to vote on everything.

[35:11] Right and and how do how you communicate to your team about what, what their ownership is and isn't I think is incredibly important in terms of that alignment how do you make sure, people understand what they're rowing for and it's not a vote on are we going to implement you know this new you know vendor relationship or whatever it is that cannot agree with you more on on that and it's 1 of The Fears that a lot of owners have right and and considering this an option am I inviting everyone into my office to tell me how to do what we've done to be successful so far uh are they going to get to see everything behind the curtain um and how the sausage is made uh or how the finances are presented in what we've been doing and with an ESOP in particular it's beneficial ownership is is the term um they are beneficial owners they're not direct owners they the ownership of the company is in the trustand that that trust owns those shares for the benefit of the plan participants or the employees so they they get the financial goals or the financial benefit of being a participant but they don't get the same rights as as actual shareholders before in order to come in and tell people what to domy 1 of the other sayings that I say a lot is you do not want to stress the goose that lays the golden eggs so why would you want to change anything if it's already working.

[36:41] If it ain't broke don't fix it.

[36:43] Um but what we're trying to do is enhance everything around it in in this this transition but it it preserves and protects leadership.

[36:54] And the the the magic sauce, that as you as you mentioned of what made the company successfuluh and just allows for all all of the benefit stream uh and all the employees to participate in a way that doesn't disrupt that, and it is distinctly different from uh the the eot is the the employment uh employee ownership trusts uh the ESOP itself and how those are are structured but uh that I think what you get. In an ESOP is that that Goldilocks level of governance and process uh along with significant financial benefits uh for the employees for the selling shareholders and and for the company, and for the company right and that that's a real engine too um before we.

[37:43] I just had 1 more thought too on the the kind of umthe alignment right because my experience with the Financial transparency was that when the folks at the project level understood the way in which finances flow through the organization and what levers they were able to control um they got better at controlling those lovers which then makes the organization stronger and, more successful financially and I think the ESOP in some ways is like that kind of provides just the right amount of governance to do that by by default in a in a sense and then through the employee education and I think that that right level of conversation of the business of the business at the, business of the projects level is just what you need in order to make the the organization truly successful you know and for the benefit of everyone that's that's their contributing and participating.

[38:42] Yeah I that that's exactly where I was going as well to be the and I think it's 1 of the things that.

[38:49] You know maybe 2 or 3 years before somebody before a Founder was really ready to dive into an ESOP are really think about a financial transaction is um. Is to start that process of thinking about transparency and rather again build it into the culture build it into the practice build it into the operations so that on ESOP day plus 1. Right you it's not new people have some exposure, to to how you know their work affects the finances of the business and how the finances, finances of the business affect their work and kind of lay that groundwork you know 1 2 years in advance um, is really sets people up well I don't I don't think that this is a this isn't a quick process.

[39:39] You know and maybe that's I think you know Jason you've done tons of these transactions I don't know what the average length from you know from feasibility to close is but as a piece of a succession plan it's it's a several year conversation is our experience.

[39:57] I I would agree with that and the reason that I say that is I often get questions when when should we start. And what should we start withand my answer is always start now. Uh because you're you're obviously thinking about it but it doesn't mean make a decision now to to do this it means make a decision to follow the process not the ESOP process not a defined process off the shelf but start developing what's important to you as an individual and make the first step how do I figure it out if we go back to that that idea of what what is itand uh how do we build greater context it's maybe start with what do I have and how how then do I take that to market for any market so that I understand not just the value but the responsibility as an owner that that I carryto see it through for the people that are working with me if it's important for me to include them in my thought process for for an exit so start now take 1 step at a time uh and get moving with intentionalityon having a plan in place and be willing to.

[41:17] Explore options and include options and exclude options along the way but once you find out what's important to you as an individual in that process it should build its own inertia.

[41:29] And that's going to carry you to the next step to find the plan now when when you get there and you go I I want to include my employees and whatever my point is I want to include management specifically uh I want to preserve my culture I want to leave a legacy behind um I want to maintain the magic. Uh those are things that should be the filter for do do I sell to a third-party do I sell to a competitor do I include private Equity do I consider an ESOP. You can create almost whatever you want on on paper with with an exit but if you.

[42:08] Refine your qualities and are able to Define them that should carry through a process and it does take time. And things are going to change events in your life may change those and the priority of those while you're vetting this out but if you don't get started. You never know uh how how long it will take or where it's going to take you what once you decide an ESOP is going to be right for me based on all these factors. 469 months 12 months sometimes timing is a consideration whether that's personal timing or business timing and a good advisor should help you determine is is that going to be a an effect, on what you expect to get out of the transaction in in this way qualitatively or quantitativelyum but, if you're ready then you're ready and you can take your time executing uh but you're right it none of this happens overnight. If it does it likely means that circumstances and events have occurred to you. Uh and now you're forced to make a decision in a short period of timewhile you have the time and that isn't your scenario be intentional about taking the first step is what I would say.

[43:22] Yeah agree I like to think about it as like what you saying the prerequisites are the same.

[43:29] Regardless of the transaction type and then it is really about your values your, goals your objectives to Define which transaction might be right for you and if if people on culture are important like many, like that's going to point toward an ESOP because there's a way of preserving those that an ESOP offers that the others just they just don't you know.

[43:53] I think yes and you know from what I've seen what we've talked about you know Jason over the last few months. An ESOP also doesn't mean that you can't get you know if not top dollar very very good multiples right a very strong valuation, um and you know a lot of capital out of the transaction like it I think maybe that's another 1 of those myths is that like oh if I do an ESOP I'm just not going to make as much money. And and I don't know that that's true I mean that could be true that might be the way you you structure the deal or there may be circumstances but I don't know that an ESOP.

[44:31] Perforce is just a a lower multiple kind of situation. That's another 1 of those common misconceptions around um because there is a standard of value that esops have to transact for which is fair market valueum everyone thinks that well that means that I'm not going to get greater than what we're we're worth if but someone out there is always willing to offer that uh in in the marketplace I don't know that that's true but fair market value itself doesn't just mean that you're you have to accept what some you know just just what this is over here you're not going to get. What what the company's worth you are, negotiating for exactly what the company is worth and it's not as simple as here's a a multiple that we hear and then here's a number that we apply it to. Without engaging with a professional to say what what should it be applied to and what really is fair market value then there's always the operative question of, how is it coming to you and probably the most important 1 um because any number, can look really attractive on the front end uh if there's a lot of caveats that are impossible to perform on um that that are a component of of the deal and so this gets back to 1 of your your earlier statements around people think it's very complex and it's.

[45:48] Needing a broader context of how how deals are structured what's important to you and I would never say you have to be an ESOP because you're a creative agency because it fits every creative agency or you have to be an ESOP because you there's so many tax advantages of that that you just can't uh miss out on the opportunity of keeping money from the IRS legally uh it, it's what what's important to you. And if it aligns pursue it and the more time you give yourself to do that then the more something or else is going to resonate. And there's no wrong answer for if I want. A top dollar synergistic Market premium then my selection of buyers in the process for that is going to be very narrow, it's going to be very specific uh and I'm going to have to hold out for that if that's more important than all the other factors that that I've identified as as a seller which makes that process that much more important to get started onum but you're I I would say that, of the people that we deal with and that we've worked with to ESOP transactions no deal gets done unless they're in agreement No 1 feel like they've been slighted.

[46:57] Everyone knows that the reason they went through the process is important to them and they feel that they have accomplished that in the transactionum and that is what sets up, for not just a successful transaction but a successful transition of culture being sustainable so that it reinforces itself. Through whatever occurred at the ownership level at the functional day-to-day level it just makes that that energy that much more palpable a after the close of an ESOP in my experience long-winded way of answering your question uh with earlier but uh. It's important right there's there is a lot of value in these companies and I you know we watch folks we watch Founders and owners struggling with that and trying to square square all of the pieces right and I think, the important kind of nugget there is that you don't have to go in assuming you're going to leave money on the table. Right um and that's which is which is important you know Po Folks have have put in many many years to build this and. The for the exact same reason they don't want to see it diluted because you know suddenly we have just overwhelming process and risk aversion or whatever it is. You know folks also want to want to be fairly compensated for for the risk they're entrepreneurial risk over probably many many yearsum.

[48:24] So it's it's an exciting it's an exciting format to watch it happen and to sort of to think about the ESOP. You know the other thing I think we've talked about it a little bit here is that an ESOP is a component. Of a succession plan right it is not in and of itself a succession plan but you can um. Maybe tune your timing a little bit more and maybe you do the ESOP first and then you do the leadership succession right I know there are a couple number of agencies actually in the in this space who have done their esops that way or or you flip it, and you do your leadership transition first and then you do your ESOP and it and both I think, work equally well um so you have a little bit more of control of your what is your company need what are your people need what is your culture need. Um let's let's do it the way that works for everybody not not the way that's driven by you know that Market Force to maximize return. To optimize it for everybody and and take our time and be thoughtful about it.

[49:29] Yeah and I think we can't kind of um underestimate the importance of the owner founder being able to digest at a pace that is comfortable for them um, because that's I think that in succession planning the biggest barrier you know whether it is. In often this individual who's able to kind of do any number of things really really well and has an entrepreneurial spirit and so the feeling is like oh there's nobody else that can do all of those things like like I do well now you have time to find the 4 or 5 people that might in combination um create uh a similar type of like force to take the the company forward and and feel comfortable in an ending it over you know um with some of those external transactions it it can come to you from above and outside and that can be uh even more jarring than giving Over Control to people you know and love and choose um so yeah I think the the owner component is super super important here and looking at it.

[50:42] Absolutely agree well Kavita and Miriam uh thank you for joining us today. Uh 2 last things um first what would you say to owners of agencies out there uh and what what they're doing today to encourage them to take a first stepuh and then second. Uh how can our listening audience find you uh if they wanted to to reach out.

[51:09] All right I'll I'll take the second 1 first because that's a little easier we are the fraction collective.com. Uh is the best place to find us either Miriam at or Kavita at the fraction Collective or just a from our website. Um and I think the place to start really is with um with that internal kind of dialogue about what do you need.

[51:34] Right and and that's something we have worked directly with Founders on it can be sometimes people work with their CPA, sometimes they work they work it through with their life partner however however they want to approach it I think that is the that's kind of the Bedrock. Is is what do you want this to be.

[51:55] Um because that that it's from that place that all of the other questions and Explorations Will Spring.

[52:04] Very good uh well audience thank you for listening in uh very happy to have introduced you to the fraction Collective and our guests we hope that you found today's topic both exciting and exhilarating uh but we'll be here next time on the journey to an ESOP and Beyond podcast, thank you so muchthank you Jason thank you Jason thank you everyone.