EP10 - Foundations of Transition- Strategic Direction

In this episode of the Foundations of Transition Series, Jason and Makenzie focus on the theme of Strategic Direction, asking the critical question: What direction are we moving in, and how are we getting there? Each workshop-style conversation in this series is designed to help business owners think more intentionally about the future of their company and the role they play in shaping it.

This episode challenges owners to step back and “look up” from the day-to-day demands of running a business to look ahead. Jason and Makenzie discuss why better questions lead to better strategy, and how defining what you hope to gain from the future of the company can lead to a plan that is both realistic and effective. Through practical insights, they explore how thoughtful strategic direction creates clarity, momentum, and a path forward for both the owner and the organization.

Transcript

[0:12] Welcome back everyone to the journey to an. Cast where we seek to make all things related to Employee Stock ownership plans both accessible and understandable. Today uh we're in we're going to explore together our third episode uh or third instance of our foundations of transition series if you've been following along with us since the beginning of the year, this is a once a month uh for every month of 2026 stepping stone uh of, ideas and Concepts and questions to ask yourself is you evaluate a transition uh toward an ESOP or even toward a different exit, so we're we're very happy to be having these conversations with you uh I'm your co-host Today Jason Millerand I'm McKenzie worth.

[1:06] And today's topic is about strategic Direction. The last time we talked about courageous leadership uh and what as from a Founders view creates, uh ah what's what's the word that I'm looking for McKenzie um like a bottleneck toward uh the future growth or expansion or the the next chapter of a company um Beyond it it its current uh incarnation. And we alluded to in this 1 we're we're going to help take uh that and translate it into well where where do we go next, um and the I think the natural question that comes up is once, Authority is shared once you're able to get through that founder bottleneck and start Distributing responsibility and accountability to others uh it becomes well, what what direction are we moving in uh and that's really what today is all about.

[2:10] And I would just add not only what direction are we moving in but how are we getting there. Which I think encompasses all of the Strategic Directionum. Which requires a shared understanding from not only the owner's perspective but the business as a whole.

[2:35] So let's let's frame up the topic a little bit um around this this idea of Direction and what what's what's coming next uh I think. There we go with I think again um I'm gonna I'm gonna try my best not to use that today so McKenzie call me out every time I start with with I think we're doing a lot of thinking here it is thoughtful topics uh and it does require some some brain power to be activated while while we're interacting with itum, but we are talking about thinking and putting yourself in in that that cognitive mode of what what comes nextand, from an owner's perspective the best way to approach strategy is instead of constantly moving its to start thinking or continue thinking long term but asking better questions about the future.

[3:36] Andfrom a business perspective what you're hoping to distill from uh that. That cognitive exercise from that that thought exercise of uh what's next what's the future how do we get there we're going to get into all of that, but it's distilling it down into a a strategy that people can go and do, and we know that you do this as Founders every day otherwise you wouldn't have a successful businessand uh it's really looking further out ahead than where you think you need to be, and 1 example from a client that we were we were just visiting um was talking about, uh being on a a racetrackand they were saying that they're they're kind of co-pilot.

[4:25] Uh was telling him that the speeds on the racetrack that you're going you have to look further ahead than where you normally would uh for you're you're just driving your everyday driving uh and that co-pilot uh or Navigator or password whatever the the term was kept telling them no you have to look up you have to look, for further out and that's really what we're asking you to do you're you're driving a a, a vehicle a business with a lot of horsepower that is already on the track that is already in motion and for this next phase just asking you to have the longer view because you're going to go faster uh because you're going to have more horsepower underneath of you especially with an ESOP company, bringing and aligning all of those employees, uh behind you as as kind of a Tailwind rather than than any headwinds so just giving you that perspective look out ahead we know you're already looking at the road we know you're already driving this is a moment to get a different perspective.

[5:31] Our listeners will probably see a common theme throughout our our series of this um foundations of transition thatit's less of getting or more of getting out of your day-to-day and, thinking long term when it comes to all these different. Foundationsthat we speak to so a common theme Hereit's looking looking into the future.

[6:00] I liked this key principle um that came up as we were uh kind of pulling and pulling things together for this episode and the. Uh that's strategy only matters if others trust and understand it.

[6:21] Why do you think that is.

[6:26] I think when you talk about strategies and owners or leadership talks about strategies it's kind of just this this idea this notion this theoretical idea, umand this key principle really emphasizes that. Those that are receiving that message of what our strategy is as a company must really understand what, what that means and how that how that ties tome as an employee and my day-to-day. Um so I have to fully understand what what the strategy what the vision is and also be able to trust, that we will get there and and how we will kind of live out that strategy. When do you think are some of the Inhibitors to that um as as an employee. What would um what would that disconnect look like or feel like 1 in a lack of trust and then second and a lack of understanding.

[7:33] Maybe if you're not seeing it kind of come to fruition if you if this has been the strategy for a long time but if you're never reaching that strategy or or, attaining the goals that come with that strategy. Or maybe you don't know how to contribute to the goals that are set in reaching thatstrategy. I was shocked by uh this Harvard Business Review stat that said over 90% of employees don't understand their company's strategy.

[8:10] AndI I struggle a little bit with that idea of um.

[8:20] Can you put yourself in the seats of the people in your organizationat each level. And clearly articulate what the company strategy is in a way that they they do understand it or the way that they do receive it umare you physics fan. McKenzie. I actually liked physics in high schoolso it's been a while Richard Fineman are you familiar with with Richard Fineman so he wrote a book called 6 Easy Pieces um explaining uh.

[8:57] Applied physics and and quantum theory it's actually a very easy read uh Fineman approach was uh and I forget the the relative but basically if you can't explain a topic to your grandmother in a way that she understands it um then maybe you don't understand it either and you should work on your ability to articulate that until your grandmother could understand what you mean and so his approach to teaching what is obviously a very complicated topic or can be a very complicated topic was I I I want I want my grandmother to be able to understand it so I have to break it down level by level andI I think that's a good approach for people to consider, I would also recommend picking up the book it's a great book it is an easy read I promise you if you're at all interested in physicsumbut.

[9:51] Your SE Suite is going to understand things better than your management layer your management layer is going to understand things better than your your supervisory layer and that's understand more than your your Frontline worker. Layer of your organizationbut you as the leader should think about how to articulate those those things in a way that they they get it. Because if the employees inversely can't explain the strategy.

[10:26] Then it's going to make it really difficult for them to implement itwouldn't you sayrightI think that justturns your employees day to day into just. Kind ofdoing their tasks and that's it not thinking much more bigger picture beyond that um. In terms of contributing to thethe larger. Direction of the company whichin ESOP specifically we know that'sthat's something ESOP companies strive for and want their employees tobe on board with.

[11:03] Our whole goal in this foundations of transition isn't just about. A a company's ownership Changing Hands uh in in the future it is also about the the nature of you as human beings transitioning in roles, um so McKenzie why don't you share with us uh kind of this Evolution as an owner in light of a company's life cycle uh what what what strategy like, um when a Founder opens their doors and begins their business.

[11:40] Yeah I think when you'rejust starting your business you're in that entrepreneurial mindset you're kind of. Heads down just grinding every day trying to get through the day-to-day to make some result, happen um and when you have maybe you only have a small number of employees at that time probably and. Maybe at that point your strategy isn't.

[12:08] Isn't super it's not very narrow maybe it's pretty Broad and so everyone at that point is kind of just following the founder. And the owner and what what they're trying to accomplish helping themwhere they can how they canbut. Once you reach the point where you're realizing oh we are growing we arehitting Revenue targets that we aimed um. I think your mindset has to shift from okay instead of let's just getting. Every in any sale what What markets are we trying to actually pursue and Target um who do we who do we want to serve who do we not want to serve and what what makes us as a company different. So I think it kind of shifts fromthe owner just making all the decisions and everyone following the owner. Having some sort of strategy in place being more intentional with where you're goingin the beginning that's super simple.

[13:16] Right uh many of you are magnanimous people you are magnetic. And you and entrepreneurs have an energy about them that attracts and makes up in the in a short term for a lot of um. In inefficiency or suboptimal not very many people are thinking about uh being optimal or being extraordinarily efficient or optimized in the beginning, and it takes that energy of the Visionary and of the entrepreneur to get things started to to get the momentum rolling to get inertia behind everyone and it's it's really easy for those that come on board to just go I'll do whatever he or she says.

[14:10] And then when the results start happening um. That does build trust that we talked about just a few minutes agobut it doesn't convey strategy or understanding, and if you don't have strategy or if you do have it and don't articulate it then the energy dissipates. To some degree maybe not in its entirety but it certain gets diluted when you get more and more people uh in in your organization, because it can't be as we discussed last time a bottleneckso I love that concept of what you said in the beginning just, do do do what they say uh do what I say F follow the founder but it's got to shift its got to move and how how do you how do we get there and what you said is really insightful, the leaderuh has to look out and start asking questions.

[15:12] Not answering them providing answers if they have them but maybe that's the way it's been before like come along this is where we're going this is what we're doing if those questions are even asked and then, they have to turn and look ahead and into the dark of the future because no 1 know what the future is going to hold and and start charting the path in a way of, what what are we going to do next and then how are we going to do that and then what what do we have uh available to us and that that whole shift is, just essentialfor this this Evolution um in strategyyeah and I think when it is all in. Kind of the owner's head and everyone's just following the ownerthat doesn't allow you to.

[15:59] To grow becauseothers are kind of just waiting around to as you said take orders and what what am I supposed to be doing what am I supposed to do and without a Clear Vision and strategy, they have nothing to to follow on their own or take initiative on their own.

[16:20] So we we talked about if employees can't explain the strategy they can't implement it. And then now we're talking about the mindset of the the owner or at least the the direction of the owner's Vision looking ahead from behind or at the now I don't want to say behind um.

[16:41] And now we're we're touching on employees can't execute a strategy that they can't see.

[16:51] I want you to think about that for a moment in our our little analogy of if the. Founder or you as a Founder are the only person that can see the only Visionary that there is and what's coming next for the company. It's your obligationuh to be able to convey that Vision um as if the person who is pushing the the cart or driving the car is blindfolded. On the track of your strategythey're not seeing the road and so they can't just tilt their head up and look further outyou have to tell them what they're seeing. Otherwise they're going to go off track real fasttoo if you're not. Not only are you notcommunicating it but if you're not communicating it well or in a way that allows them to understand itand follow it then you yourself as the owner May. Start to get frustrated andyou may justyou may be frustrated but in the same. In the same sense it's kind of on you to make sure that that they understand so they can contribute to your strategy and your vision.

[18:13] McKenzie what if I saidum.

[18:20] Of the let's call it I'm just going to use a number let's say of a 100. Um Middle Market lower Middle Market size companies and and the United States. Of that 100,000 I think that our strategy should beto convert 75,000 of them into esops this year. They'll have to gothat does seem even reasonable or achievable or um is it that literally. And actually unrealisticyeah I thinkyou're touching on. House strategy needs to be realistic because otherwise if you tell me that.

[19:09] Knowing that that's not evenpossible how am I going to. Am I even going to try to make that try to hit that Target if I know it's just not attainable.

[19:24] We said earlier that 90% of organizations. Uh in that Harvard Business Review do not meet their strategic objectivesso the inverse of that is only 10% do. Uh-huhI would love to see. A drastic increase in the number of ESOP owned companies that's why I do what I do why we do what we do why the podcast exists so that more people can hear about it and learn about it, um but I have uh no no umme misguided, uh hope that of there's that 75% of all privately held businesses are going to convert to to ESOP ownership, umand I if I led from a a place of production uh based on an unrealistic expectation then anything below that, just falls apart like a house of cards.

[20:33] Because you wouldn't believe me um and to your point it's like if I can't achieve it why would I bother and even if you did convince me ormotivate me enough to have the ambition to, to try to attain thatthere need it needs to be backed by more than just this is what we're going to do. There needs to be planning their needs to be how are we going to do thatand is that do I clearly understand how we're going to do that.

[21:04] I think that leads to umI think another way to to, phrase it what you're touching on there with your responses to my donkeyote goals of wanting 75% of companies to be esops uh is if, go forward marching orders then you wouldn't be engaged it just wouldn't you wouldn't bother um not to say that you wouldn't work on what's reasonable but, there's there's no incremental lift toward what what is achievable like what can we do uh it would be I know we can't do that and if that's where the energy is being pushed, then again back to kind of dilution and dissolution of that. Not that energybut then your role contributing to the company goals when they are clearly articulated.

[22:04] Would create more engagement for you and we've mentioned engagement a number of times on on the the podcast and the benefits of engaged employees so how you articulate the strategy and the reasonableness of it makes a lot of sense but connecting it to the Daily work is is the key principle and uh in in all of this effort to Define it figure out where your role is and then uh how to communicate that to your your Workforce. Right being able to translate it to your day-to-day roleat every levelor any level.

[22:51] So the opposite of unrealistic is realisticum and when there is a realistic strategy then it reinforces the idea of credibility. Uh and. I think you've heard me say a number of times kind of using the same example it's less about how many esops get created with our Assistance or with our help through our work um but I I just like 1 more.

[23:22] I'd like for our podcast I would like for our um our team I would like for our presence in the community to help influence 1 more, um not looking for uh 75,000 esops in the next year or even in the next 10 years even though it would be amazing um but if there's 1 1 founder that is wondering about a way to do all the things that an ESOP does for Founders and for employees and for the community 1 moreright.

[23:54] I get on board with that there you go all right so I was gonna ask how how how do you feel about it being framed that way versus what let's do a kajillion right. That's something I I mean even even more than that that might be a little conservative but I I believe that that is attainable. Which is the weird part about it because even when there is 1 more its kind of infinite so maybe we'll get to the 75000 at some point in in our career because we can always do 1 more um. So that that makes sense that that number makes sense to you uhwalk us through some other elements that would enhance that credibility as we're thinking about crafting strategy so we talked about communicating it we talked about understanding it and now it's setting a realistic expectation um what what else. Yeah I think there are common themes so as you said the number makes sense so do I understandor do I think it's it's achievable do I believe that it's achievableum.

[25:05] Maybe if you're kind of if you make it more broad if your goal was just we're going to have Revenue growth this year I need to understand does that mean you want, or we want more clients does that mean we want to provide more services what area are we focusing on.

[25:27] And thenstill believing that that's achievableand then also. Understanding my responsibility in achieving thatand executing our goal and our strategy.

[25:47] 1 thing that I really value about esops and we we talked about this strategic alignment and engagement, and the other, typically disconnected piece in an organization that isn't employee-owned is the financial element of that connection understanding. Revenue targets and profit targets. Is greatwhen I'm able to understand that those Revenue targets and profit targets directly benefit me above and beyond.

[26:24] My compensation my my annual compensation and help, create a future for me as an owner that is different than as an employee that's, a financial a direct Financial linked or alignment that only comes from some type of employee ownershipright. I like to think of it as a package uh in in the ESOP like you're you're yes you're becoming employee owners uh what does that mean is always the question that we get from employees immediately what what is what is an ESOP what what does it mean to be an employee owned and. When we first kind of tackle the the the benefit elements like becoming part of a new company here's your here's your stack of benefits uh, and then the next question is become this is how we're tying that financial performance to to you this is how we're aligning that to you so your work mattersand then here's the strategy and how you're going to get there so now we have a roadmap but now we've got now we've got gas. With that Financial alignment uh that that only comes from from employee ownership. Maybe not only I just like to say only again we're talking about esops so right I mean I think this topic is very.

[27:45] Important for employee owned companies to be able to make sure they're kind of. Um taking advantage of the fact that they're an employee owned company as best that they can and not just letting it be kind of this passive retirement benefit that. Oh they know about it but that's itand it allows it to be an engine for the company and the growth of the company. Allowing them to tie their benefit to the value they're creating and how they're contributing to the value.

[28:23] So this um. Other quote that came fromuh MIT management review, says that trust and Leadership strategy is 1 of the strongest predictors of organizational performanceandcredibility builds Trust. Then trust drives execution.

[28:56] Sonow it's who's responsible.

[29:09] I think the leadership team is where it starts.

[29:14] Leadership should always be accountable.

[29:22] And in that the kind of the subtle part is strategy as a whole requires ownership.

[29:33] We use ownership as an interchangeable term here um when we were talking when we were talking about esopsum but we equate ownership with responsibility, taking ownership of that responsibility and then being held accountable to that leadership is available to any employee that's willing to take initiative and operate within their capacity when they know what to operate toward. Quantifying things really helps creating goals creating metricsBut ultimately the execution of the strategy relies on individuals owning their part of it, and the beauty of an ESOP is you you also own a financial part of the outcome, and that creates more more motivation so credibility in how the strategy is, communicated builds the trust trust drives the execution and then strategy requires ownership uh in order for it to be executed well.

[30:42] We can touch on somepracticalexercises that owners can do currently if they're not already thinking about strategy or have a strategy or Vision in place.

[30:57] Some questions that you may be asking yourself orinvolving your leadership team withare where is the company's growth going to come from. Over the next however many years 3 to 5 yearswhat must be true for that growth to happen. Do you need more peoplewhat what what must be true for that growth to happen and then what will we stop doing to make room for itthat's a great question. Why is that a great question.

[31:38] If what you're currently doing doesn't align with where you want to gothen something may need to you may need to do some reshuffling. Or restructuring really.

[31:53] So like both of those last those last questions that you asked that that last 1 specifically but the other is, something I've adopted into my vernacular I know you're tired of hearing it um on on our calls but what what must be true, umandI love it because it. Provides both orientation and Direction with so few words.

[32:24] Without the answer beingprescriptive or precluded in the questionsometimes we don't know, um or we're looking at it in a different way like how how much money how many people um what kind of capital do we have and we start from this universe of everything, and we're trying to distill that down into not just what's important but what's emergent and then what's going to stay relevant in into the future. And pivoting to what must be trueand empty space.

[33:05] Orients all of those things into oh okay what must be true for what what must be true for growth what must be true for leadership what must be true for uh expansion um. Then it eliminates a lot of that nebulous Universe into these things and then you can evaluate whatever those answers are, honestly uh and make improvements and so I I love that phrasing of what what must be true um, and it naturally leads to your last question of well what what do we what do we got to what are we going to stop doing we're not going to do, uh from here on outand uhthis quote that came from, uh Michael Porter said the essence of strategy is choosing what not to do.

[34:24] I think, there we go again um that the these are the questions that we'll have in our workbook page for umfor our listeners uh that that will load into the link on our website. Andyou'll be able to come up with some others, I I know that you have and I know that you will as you go through this exercise but we're intending on keeping it short simple 1 page at a time 1 Step at a Time 1 foundation of a time at a time. Andwe've started withwhatwhy are we doing this what what's our purpose we've gone to. Leadership courageous leadership what it takes from you to be ready and willing to transition your company in the in the future however far out that is and then today is really turning that lens on what is the future of this company, what is the future of this company without me.

[35:29] And how do I want that to look what's what's next for both of us independent from each other. We probably talk about this more than um. More than some other topics but that idea of your your business and youat some point will be separated by circumstance if not by intention and we are. Uh glad to be part of. Your process for being intentional about you transitioning your business before it gets separated from you. Both. Physically financially and you know through through your your identity um those are things that you were that last 1 you work on on your own we're just calling it to to your attention, and don't don't mean to make it an uncomfortable topic but it often gets distilled into please do something please get a plan together before something happens, umso you'll you'll hear it that way I like to say it in in a different way.

[36:41] Our goal here with the foundations of transition and especially with the first 3 that we started with so if you've been listening along you may know we're releasing these series on the first of the month or first Friday of the month every month, for 2026our goal here is to help you create the. Structural Foundation required for a successful transition into Jason's point to be in a position where you have. Looked far ahead you've planned. In advance and you're not in a position where there's a triggering event that forces youto separate from your businesswithout any sort of. Planning in place.

[37:31] So if you enjoyed listening to our episode please join us again next week as a reminder at this series is released on the first of every month so our next, uh found Foundation transition will be released the first Friday of April um. Subscribe share with a friend interact with us on journey to an esop.com and we hope to have you back, thank you for listening.