Jim Susman, principal, STG Design
Baby boomer-owned professional services businesses are facing huge decisions in the next five years as more leaders consider how to transition their businesses to the next generation. STG Design, a 40-year-old firm with offices in Austin, Houston and Nashville, found itself in this spot when long-time owners edged toward retirement without a succession plan.
After our company was approached by a 1,000-person architecture firm in 2015, our leadership discussed the pros and cons of being acquired; ultimately, we decided against that path for STG Design. We saw other firms that were acquired lose their identities. The STG founders wanted to continue the legacy for our employees and to preserve STG’s culture.
Over the next two years, we explored every possible scenario—speaking with three accounting firms, two financial advisors, three law firms, two banks, a mergers & acquisitions firm, and two employee stock ownership plan (ESOP) consultants.
This deliberate process, which included hard conversations and some soul searching, led our team to two factors driving our decision: culture and autonomy. These surpassed everything else, causing us to zero in on becoming an employee-owned company—an ESOP. Currently, about 10,000 ESOPs operate in the U.S., covering 11 million employees.
Under an ESOP, a type of employee benefit plan, a company gives employees stock and lets them access funds after retirement. Unlike a 401K, no money moves from their paychecks for the stock.
Among many other positives, the following features made an ESOP a good option for us:
- Companies and leadership can preserve their independence and autonomy.
- The stock ownership benefit is a valuable tool for employee recruitment and retention.
- ESOP companies tend to out-perform non-ESOP companies in similar industries.
- Employee ownership incentivizes employees to overachieve and provides a sense of empowerment.
Through our ESOP journey, we learned a lot and have some key takeaways to share:
- Start early. Our transition took almost three years. A business model shift as important as this one deserves an extremely measured approach.
- Define your company’s vision and ideal future, taking into account the needs and aspirations of internal stakeholders.
- Weigh and prioritize issues of employee opportunities, retirement, debt, recruitment and retention, resources, growth, culture and autonomy.
- Know there is no universal template for a firm’s succession. Each decision for firms dealing with transition and succession will be unique to that practice and its most important resources: its people.
- Read all you can on the topic. I encourage anyone contemplating ownership transition to peruse “Success and Succession: Unlocking Value, Power, and Potential in the Professional Services and Advisory Space” by Eric Hehman, Jay Hummel and Tim Kochis. It’s a good read and great conversation starter.
Succession is a natural (and inevitable) move forward. Transition of our privately owned firm required a leap of faith in the ability of successors to reimburse those who created value and invested in the firm over the course of 40 years.
In retrospect, we now know that becoming an ESOP was the right choice. For us, once the decision was made, the process was its own opportunity to learn. It was not for the faint of heart, the miserly or the impatient. It was precisely the right decision. And, it’s been ratified wholeheartedly by our 115 new owners since our ESOP closing last year.
Jim Susman, a principal at STG Design, has been practicing architecture for more than 35 years. He oversees firm design, operations and project delivery, working with all studios to ensure design innovation and quality. A leader in the firm’s ESOP transition, Susman is looking ahead to retirement in late 2020.
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