When an ESOP is Sold

jaykay

My biz alma mater, New Belgium Brewing, just announced a sale.

A quick, superficial glance at Twitter yields comments like … “glad I quit drinking.” The antipathy is short-sighted for several reasons. 

Strategy and competitive forces. In some business sectors, being in the middle feels nearly impossible. Too small to be big and too big to be small. Tech, engineering, CPG, and more have similar marketplace dynamics. Businesses all face challenges in logistics, distribution, and talent attraction. Small businesses can be niche and attract a nuanced consumer. Big businesses have a power differential that provides advantages and, in certain circumstances, momentum. The middle is uncertain – well, even when I worked at New Belgium, a few people assumed Anheuser Bush owned us. The marketplace dynamics of consolation are a massive challenge. One may need to decide to shrink to be perceived as local or grow as part of a more extensive corporate ecosystem.

Now, this isn’t to say a mid-to-large ESOP isn’t possible. They are. With the right advisors and strategy, ESOPs may provide a vehicle to drive growth. Simply plugging in an ESOP isn’t a strategy. Any growth business needs a strong, visionary, savvy board and a unified, aligned, strategic leadership team.

Further, having the right advisors is key. ESOPs are a tool, and having a partnership with ESOP advisors can be the key to leveraging the nuances of an ESOP or hybrid ESOP with other broadly shared equity plans or internal markets. My big dream is that we can build a holding company that is an ESOP and holds and grows more small businesses and helps them scale up and become extraordinary.

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Regardless, every business has dynamics that need to be leveraged and managed. ESOP or not, strategy, leading the marketplace, and having a distinctive (disruptive?) vision will be key.

The business world is fast-changing and dynamic. Is one capital structure forever? Great brands like New Belgium Brewing and other talent magnets (tech, engineering, etc.) firms will likely undergo multiple capital re-structures. Other businesses and talent magnets secretly take private equity money. But, due to the nature of these investments, they tend to be quiet money. Quiet money is not unimpactful money. Nevertheless, it doesn’t often make one’s Twitter feed. PE portfolios also have unique features and investors, making it hard for ESOPs to compete. Driven, high-minded, growth companies will undergo different structures to get investments to make their ripples. Decisions will need to be made for great companies – grow impact or risk stagnancy. When a group of people finds the potential for positive societal impact, in my opinion, it must grab the chance.

Hopefully, someday, the ESOP community can build a PE-like fund big enough to level that playing field and be a role model incubator for aspiring ESOPs.

Growing wealth. Businesses are bought and sold often. Take Instagram selling to Facebook for about a billion dollars. Ballast Point sold for nearly a billion dollars. In most sales, a few people get rich. When an ESOP sells, more than a few people get money. Now, beach house money may not be in the picture for many ESOP participants. Still, it is likely more money than $0, as in other business sales. Ultimately, the New Belgium sale will likely benefit tenure more than elite management status. 

The magic ingredients. A capital structure does not always equal the passion of the business. Let’s face it; most consumers care less about who owns a business. When you buy something – do you really look to see who owns it and where the profit goes? Oh, how I wish we all did! I am an employee ownership advocate in the sense of inclusive capitalism. We can all take part in the capitalistic pathway – as the New Belgium Brewing ESOP participants did. If we had a more open economy with doors open to more than the top 10% of wealthy investors, our situations would be different. But I am not dogmatic about ESOPs. An ESOP may not be the right fit for any business. The unique tax structures make it a perfect fit for certain situations and with many founder transitions. An ESOP may not be a forever fit for a company. But, broad-based gain-sharing schemes and broad-based equity may be. There can be a roadmap to inclusive capitalism that may include hybrids, internal markets, etc. There are complexities, and there is no singular answer. These inclusive systems, complemented by servant leadership and an open systems approach to running a business, can be a powerful source of brand identity, authentic consumer connection, and a meaningful employee experience. A lot of good is created by companies that take on a dynamic systems approach to leading.

New Belgium Brewing is and will always be more than an ESOP. It is a dynamic combination of inclusive capitalism, open systems management, social-emotional intelligence, and servant leadership that scaled a brand to be an American brewing standard. In about a decade between 2004 and 2016, we grew a lot. More important than growth, we did a lot of great work. Were we perfect? No. But we did damn good. The brewery is an ardent advocate and practitioner of environmental practices that set a new bar for what environmentalism can look like. From this community-centric viewpoint, the biggest risk to the broader inclusive capitalism idea is not a capital structure; it is leadership.

The people, the great people, redefined what an employer-employee relationship can be. The alumni circles emanating from this company have a far-reaching impact with other companies and industries, rippling compelling ideas deeper into the business world. Our unconventional approaches set a new view of leadership. The people, the great people, redefined what drinking beer can be in a post-yellow beer era in the US. But, it is us, the consumers, that will ultimately define what companies we reward with our dollars. Will these companies use the profits we give them with honor? Or will they extract value and leave us to clean up their messes? Employee-owned, environmentally conscious, servant-lead, BCorp – no matter the label, it is up to us as consumers to support these companies as often as possible.