Making Employees Member-Owners, with Liz Ricca

On this final episode of THRIVE for 2021 — sponsored by Workamajig — Kelly and Liz Ricca of Big Duck dive into the details of how the agency recently transitioned to employee ownership.

Episode 112 Links

Big Duck: https://bigduck.com/
YouTube Channel: youtube.com/channel/UCboltXvff1KfeCHpQbY_8PA/
Vimeo Channel: vimeo.com/agencyscaler

Transcript:

Duration: 21:13

Kelly: So welcome to Thrive, your agency resource. As an agency leader, have you given much thought to your succession plan? What about making your team feel really more invested in the company than they are right now? Joining me today is Liz Ricca, co-director and member owner of Big Duck, a nonprofit communications firm that you definitely might have heard of, if you’re in the space, and they’re based in New York. Liz, welcome so much to Thrive. I am really excited for this conversation.

Liz: Thank you for having me Kelly.

Kelly: So, I think it’s important, and we’ve talked on the show in previous episodes about different approaches, or different options that are out there for things like this, that we’re going to be talking about today. But just so we’re all on the same page, what is a worker-owned cooperative?

Liz: I’m not gonna share their clear definitions when no one else can see all the data in my head, but effectively it is a business that is owned by its workers. So there can be a lot of different configurations. But in ours, you can’t be a part owner, unless you are also an employee of the business. So all of the owners work for the business. And everyone who works in the business has an opportunity to become an owner if they choose to. So in our case, we’re 14 employees, 14 owners.

Kelly: Okay, and you say that, when we were talking before, you said, this is sort of like an under considered option. I’m curious about why you think that might be. And then also, just like any option, there have to be some pros and some cons to it. So, can you talk a little bit about those things?

Liz: Yeah, well, I think worker-owned cooperatives, it is the cooperative movement is an old movement, centuries old. There have been a lot of different forms of worker cooperatives. I think there are probably a lot of reasons why it’s not as big a sector in the United States, particularly but there are, I think, a lot of misperceptions about it, including many, I have lots of questions about coming into it, like, how do you make decisions? How do you do anything with 14 people in the room? Do you have to do everything together? How does a business function in this way? And some of the association’s we might have with cooperative, with the idea of everyone voting on everything, and of it being sort of slower, or of there being a lot of work to do to bring everybody along probably makes it seem like the practical options. There’s also the fact that it is unlike other sort of transition models moving to worker-owned cooperatives, someone has to have the capital to purchase a business from the selling owner. And, there are actually a lot of structures out there, including the the consultants that we worked with, who helped us basically find financing and find the model that was going to make it possible for us to purchase the company, from the selling owner without each individual worker-owner having to have the personal resources to get out of their individual funds, buy a share of the company. So I think the financing, the imagining of how the financing would work could be a barrier. But there’s a strong community of folks who can help navigate those challenges and to do that.

Kelly: It’s so interesting. It’s like a lot of these things that you don’t really think about or like you said before, you’ve got some preconceived notions coming in. Can you kind of just share the story as to how Big Duck actually arrived at the decision to go this route versus all of the other options? And maybe talk a little bit about the consultants that you work with?

Liz: Absolutely. This decision goes back a long way. Our company was founded by Sarah Duran who was our owner for 27, 28 years back in 1994. She started the company and was the sole owner up until we completed this conversion process in early November 21. So she is a very thoughtful agency leader and has been talking with us for a long time about her sort of plans for herself, and what it might look like when she decided she was ready to sort of have new adventures or challenges. And so I remember a planning session we had 10 years ago where she was saying 2021, or at least will be up and my kids will be going to college, and what am I going to want to do at that point, I may be ready for a transition, then what are some of the things that might look like so not yet, having a plan, but opening the conversation many, many years before any transition was anticipated. And in the course of those conversations, just opening our minds to possibilities, we took a look at what were some of the ways that businesses like ours, that an owner like her could move on, that the business could just close, that could sell to a few employees, to sell to an outside buyer. And we looked into these options converting to employee ownership. And I should also say, while I’m not well versed in them, there are other models of employee ownership that are strictly a worker-owned cooperative. So we have this vocabulary and kind of set of options out there, even though there was nothing we were doing in terms of deeper feasibility back then. And then, about a year ago, after 2020 was a hard year, I think, for many agencies with all of the distractions of the lockdown and all of the new realities of COVID. And for us, just like many others, we went all remote, we had to re-envision a lot of things about our business. And it was a challenging year. And I think like many people outside of the agency world that was an invitation for Sarah to think about what was going to be next to her and realize that this was a time that she was ready to look for a new adventure or something new to build. So we started talking about right now, what would a great transition look like, and specifically for our business Sarah brought me and my co-director Farra Trompeter, in officially as partners a few years ago. So the three of us were the ones most involved in these conversations. And both Sarah and I felt most motivated by the possibility of leading this conversion to a worker cooperative. That was the transition that felt most exciting to us. And it was also really exciting to Sarah. So that felt like the clear alignment of what we were going to be enthusiastic about carrying forward and what was going to work for her. So that was about that first conversation. It was maybe a little more than a year before we actually signed all the documents and completed but a decade in the making took longer than a day. Yeah, it went back a long way. And, I think it’s not always the case. But I think it was a big advantage for us that both Sarah and I started at the company in 2007. We’ve both been here for 14 years. So while our founding owner was moving on, we had two very long tenured members of the team who were here to kind of ease the transition into the next phase. But this is not a requirement to be able to make the kind of pillars and that’s where consultants can. And so having decided, we were excited about the idea of a worker-owned cooperative and wanted to understand more about how that would work. We started looking into it and discovered there’s a sort of network consultants who help businesses like ours accomplish conversions like this. And it typically starts with a feasibility process, just sort of both cultural feasibility, financial feasibility, and what’s going to be realistic for your business. And in the process of looking for crucial things, we actually discover that there’s a program funded by the city of New York that pays consulting fees for small businesses like ours, who are trying to ensure succession for a departing owner, to explore the feasibility of worker ownership. And that program is called Owner to Owners, NYC, and so the City Council funded our work with the ICA group, which is a consulting firm that supports cooperatives in a lot of different ways, and has been around for since the 70s doing this work in various capacities. So we were partnered with a few consultants who helped us. It’s very change management at this scale. It’s a very deep process. So those early conversations were just the three of us. And it was a lot of how does it feel? How do you know, is this something everyone wants? Just making sure that the readiness was going back. Right. And then the financial feasibility is a really significant part of the process to the firm. It has to be valued in a way that feels like it’s fair and realistic to the selling owner and to folks representing the new cooperative owners and you have to ensure that the business is going to be stable enough financially, that there’s the likelihood of being able. So in our case, we ended up structuring several loans to purchase the business from our selling owner and we needed to be able to demonstrate the financial stability record of performance to provide some assurance that we’re going to be able to pay back.

Kelly: Right. Wow. It’s kind of mind-blowing. I mean I do understand why the option might have a little bit more stigma or a little more questioning around it. But yeah, it seems like, wow, and good for you guys for having the insights of bringing that consultant firm in, and then this happy accident that New York City was actually going to pay for it.

Liz: Yeah, it doesn’t make the process, but by any means the amount of time that we put into it was very significant. And then also, you have to work with lawyers and accountants at different points to accomplish pieces of the sale. But we also have so far been kind of describing the more backstage conversations between Sarah and me at some point in that process. We have a leadership team and brought in other members of our leadership team just to know what was happening. And once we were assured that we had a financial model that was feasible, we had a way of structuring the transaction, sale price that was acceptable to Sara and sustainable business moving forward. That’s when we brought the idea to employees. And we rolled it out to everybody in April, so about that six months, five months before we actually completed the sale transaction. And the ICA group worked very closely with us, partnered with us on sort of the initial presentations, how to share this information with folks, how to anticipate and answer questions. Really that’s a piece of the process that’s very, I think, varies enormously from team to team. It really depends on your organization and your employees, how big or small, how engaged, there’s a lot of bits and pieces. There’s a very wide range.

Kelly: Yeah. And I imagine like the communication of how that’s rolled out, and how that message is the most important thing. Luckily, I mean, Big Duck is very, very well versed in how to communicate difficult things, right? [Commercial] If there are agency leaders who are watching or listening, and they’re like, this is really interesting, what would your recommendations be for where to even start the conversation? Right? So maybe it is among the leadership team. Is it doing some research first, like, what would you have gone through the process and having been in those really, really early discussions? Where would you start?

Liz: I think it’s valuable to start with a conversation with the leadership team. That’s really where we started, just taking a temperature, where’s everybody in relation to this idea? Have people heard of cooperatives? Do they have skepticism? Interest? No, nothing? Just get the temperature of your group, is that something that folks are interested in learning more about. It’s not a huge investment to just learn a little bit more about it. But once you get any deeper than that, it’s pretty of time and energy. So it’s the kind of, I think, if you don’t feel like there’s enough trust on your leadership team to start with a conversation or curious conversation, that might mean there’s not enough trust to accomplish a transition like this, because it really has to be, I don’t think this is the kind of thing that one person can kind of make happen by force as well. It really is something that requires deep engagement, not everybody has to be the same level of engagement, but the folks who you’re hoping are going to help steer the process and help set the tone for the next phase of the organization do really need to be on board. And I should also say that for us, it’s not always the case that the selling owner departs. So in our case, this was part of the intention, that on transitioning to the coop, Sara would officially transition out. But there are many organizations where the owner doesn’t intend to transition out, just want to move to a more cooperatively run phase of the business, or where it’s intended to be a more gradual progression than sort of starting points to eventual transition out and kind of handoff of leadership responsibilities. And that can be quite different. That’s probably, that really depends on the structure of your team and what you’re envisioning the structure will be. And it’s also worth noting that if worker-owned cooperatives, where you go, your current iteration of your leadership team, it’s not going to go away, the folks who are still helping run your business will help run your business, there’s gonna be a lot more voices in the room. We have a board now and half the board are folks who are not on the leadership team in our previous iteration. So we’re working with an entirely new group of leaders. Different conversations happening in the room have different voices, which is really exciting. But also, you can’t really imagine, what’s gonna be like, definitely deeply at that stage.

Kelly: Yeah, super exciting. It sounds like I would definitely want to be in the room with all of those voices. Two points that you made that I really love. And I’m glad that you kind of highlighted them, trust among the leadership team. I mean, that’s everything, right. So if that’s not there, or you feel intuitively that there might be a little question mark, if you were to broach this with your own leadership team, that might be the place to start. Maybe it’s not starting with cooperatives, but it’s starting to really repair that trust or create that trust more deeply. Yeah, it’s such an interesting model. I mean, I could literally talk about it all day long. But as we do start to wrap up, I’m really curious about now your’e four or five, six weeks post transition, right? What are your own personal takeaways? And another curiosity is what would you have done differently?

Liz: Well, I think that I’m not sure I’m yet at the stage of takeaways, I think I’m still at the stage of taking in things that are happening right now. One of the areas I’m learning the most that is so interesting is this question of governance. And it’s often one of the barriers to how folks envision cooperatives might work is who makes decisions, and how are decisions made and our consultants helped us, gave us sort of templates and coached us through the process of creating a governance chart model for what kinds of decisions get made by the entire membership? What kinds of decisions get made by the board, what kinds of decisions have been made by the co-director, or by folks in their individual roles? And kind of setting that out. We have a good theory, but now it’s coming up against practice. When I need to change something administratively, who do I check with now? Structure? Do I just do it myself? I would like, get a vote going here. There’s some things we’re learning about what practical experience is like and it’s really exciting. It’s really interesting. There are some things that are sort of free-er than in our old structures, something that feel like there’s more education or work to be done, but all of them are more collective, which is, all is within the clear understanding of what we are each empowered to do in our roles and what we’re each invited to participate in. And that’s really exciting. And interesting. And after 14 years feels like a new job. And some very exciting ways. So those are some of the questions that are most present right now. Four to six weeks out the rubber meets the road. Yeah. And in terms of doing it differently, it’s a very, I don’t know that I could, like if I rewound it with all the knowledge that I have, now on the other side, I don’t know that I really could have changed it. But there’s a lot about it, I guess very hard, it can be very, I think this is probably true of any transition. This is the only business that I’ve been a part of an ownership transition for but I suspect that just the nature of an ownership transition for a small business is quite personal. This is something that Sarah created and cultivated for almost three decades. And for all of us, the process of that hand off, it comes with a lot of emotions, and it comes with a lot of challenges. And there are points I wish I could go back and be kinder with myself or be like to help us see some of the things we hesitate, some of the things are going to be surprisingly hard to work through. Just maybe having that knowledge would smooth out the experience a little bit for all.

Kelly: Yeah, I appreciate everything that you’re saying because that’s essentially what you’re doing for other people right now, right? You’re helping set expectations, or at least say, hey, this was my experience, this was my journey. As part of this, this is how we came to this decision. And so, it’s really, really helpful. And I just really want to say I appreciate it and I’m so grateful for the transparency and just the openness with which you came to the conversation today. So I really appreciate that. And thank you so much for being on the show today.

Liz: Thank you. It’s my pleasure.