The Worker Co-Op Solution
Introduction:
In this week’s bonus episode, Cameron Madill takes us on his succession journey, which began years ago when he started having conversations with older business owners, many of whom seemed to feel trapped. They’d had a lot of success, they were proud of the business they’d built, but they weren’t sure what to do with it or how to leave it. None of the usual options seemed terribly appealing. Hoping to write a different ending, Madill, now in his 40s, started looking for better options much earlier than most owners, and the one he landed on was an unusual choice: a worker cooperative. Now, there are aspects of this model that are likely to give some owners pause. For one, a co-op probably isn’t going to produce the biggest payday for a selling owner. And if the owner wants to stick around as CEO, he or she will have to report to a board, and that board can challenge any and all of the owner’s decisions. But Madill, as he explains in a conversation we recorded late last year, before he stepped down from his role as CEO, decided to sell to his employees anyway. Not only is he glad he did, he thinks co-ops are an option far more owners, especially those struggling to find a buyer, should consider.
— Loren Feldman
Guests:
Cameron Madill is founder and former CEO of PixelSpoke.
Shawn Busse is founder and CEO of Kinesis.
Producer:
Jess Thoubboron is founder of Blank Word.
Full Episode Transcript:
Loren Feldman:
Welcome, Shawn and Cameron. It’s great to have you both here. Cameron, as Shawn may have told you, we’ve been on something of a journey the last year or two, looking at different ownership models and succession plans, which is why we were really eager to speak with you. But first, tell us a little bit about PixelSpoke. How did you get started? What do you guys do?
Cameron Madill:
Yeah, well, first of all, thank you for having me. PixelSpoke is basically a social-impact-driven website firm that focuses on building websites for credit unions. So we have a very kind of niche focus there, and that’s what we do. It’s pretty short and sweet.
Loren Feldman:
Why credit unions?
Cameron Madill:
Well, of course, there’s sort of the polished answer, and then there’s the opportunistic answer. And there’s some truth to both of them.
Loren Feldman:
We’ll take both.
Cameron Madill:
The opportunistic one is, we were kind of a business in search of a business model. I think we were a moderately successful, but relatively undifferentiated business, and that whole kind of jack of all trades, master of none thing very much applied to us. And I think I kind of just got tired of saying, “We’ve got such great people”—kind of a version of, “We try harder.” And the longer I was in business, I just felt: This is not a good strategy. It’s not cute anymore to be trying to be all things to too many people.
And so I was really struck by something—I say this lovingly—an old, crusty agency owner told me, which was that, “If you’re not differentiated, if you’re not focusing on a niche, you’re really not adding value. You’re just kind of lying to yourself.” And that, when you really create a focus on some kind of client type, 80 percent of the work will be the same, but that 20 percent that comes from that deep expertise in this niche is what’s going to allow you to really add a lot of value. And it might seem a little less exciting at first, but that’s really how you’re going to make a difference in the world. Versus just having every client be new and convincing yourself, because you’re teaching yourself about that client that you’re really adding value, when you’re doing that, really what should be basic research.
So that was the background. I was looking for some kind of niche or some kind of focus that I felt like could really be a stronger, more stable, defensible business model, kind of from the head-centered stuff. From a heart-centered focus, we had stumbled on to having a few credit union clients from me being on the board of a credit union back in the early 2010s. They had ended up turning into a client a couple years after I left the board. We picked up a few more and just realized, they’re really just these incredible unsung heroes in the world of finance, which is a world that mostly gets a bad rap, but also is critically important.
Loren Feldman:
Are there enough credit unions to make it work for you?
Cameron Madill:
Yeah, there are. There are about 5,000 credit unions. There are still credit unions where there’s literally one or two employees, where they are sort of like super small businesses. So certainly not all of them are prospective clients. But I’m sure at least 500 to 1,000 of them are. And we only take on four to six new clients a year, sometimes three to six. And I think our total client roster is in the low to mid-30s. So, yeah, I think that’s plenty of space for us. It’s not like we have to be the big dog in this industry, where we lock up all the credit unions.
Loren Feldman:
Are there other agencies that specialize in credit unions? Do you have competition doing something similar?
Cameron Madill:
Yeah, we definitely have competition. You know, with 5,000 credit unions, they’ve all got a website from somewhere. And there’s everything from firms that specialize in stamping out websites and literally do hundreds of redesigns a year to firms that do more in the tens or dozens. I do think we might be one of the single lowest volume shops in the entire industry, which I think is a good place to be, because I think there are a few that do similar complexity and size websites to us, but they are often trying to take on much higher volume than we are. And we’re really committed to this idea of sustainable growth—a version, if you heard Jim Collins’ story of the 20-mile march, which I think Shawn hates. But you know, whatever. He’ll get over it. [Laughter]
Shawn Busse:
I loved it. And now I’m questioning it. How about that?
Cameron Madill:
Well, you know, this podcast is about me, not you. [Laughter] No, it’s a version of dull, basically just sort of keep making consistent progress. And don’t get greedy when things get easy, and don’t get complacent when things get hard. So we really have landed on this: We try to target 10-percent growth a year.
Loren Feldman:
That’s not insubstantial.
Cameron Madill:
No, it’s not. But we try to always hit that. That’s the thing, right? And we also don’t say, “Ooh, we can get 20 or 30 this year.” We just say, “Nope!” Time to slow things down and focus on client delivery and internal things, if sales have gotten easier in this moment. Or if things have gotten really hard, what do we need to do to make sure we still make that 20-mile march?
Loren Feldman:
Can you give us a sense of how big the company is?
Cameron Madill:
Yeah, so we have 17 people, and we’ll do probably a little bit over $2.5 million in revenue this year.
Shawn Busse:
Will you hit the 10 percent growth that you were trying to achieve?
Cameron Madill:
Yeah.
Shawn Busse:
Cool. What are the headwinds in the business these days?
Cameron Madill:
Let’s see, so industry-wide, the credit union industry, the financial services industry—and I’m sure everyone listening knows this—it used to be that with deposits, you just couldn’t do anything to get any kind of return on your deposits. So you could be like, “Hey, I’ve got a quarter of a million dollars, I’d like to put it in your bank or credit union.” They would say, “Great, we will pay you .001 percent.” And that has totally shifted with inflation. So right now, credit unions, just like community banks, just like mega banks, are just absolutely in a battle to get more deposits. And so kind of the whole rules of the game are changing.
I also think, as a version of the 20-mile march, money just flooded into digital during COVID, right? I mean, it’s pretty obvious if you can’t even have your branches open, where do you invest your money as a credit union? You invest it in your website and digital marketing, digital banking, etc. And so I think there’s been a bit that was like this big tide coming in. And now the water is receding. We’re still seeing a lot of interest. But I just think from a sales standpoint, the demand honestly got pretty overwhelming for a couple of years. And now we’re adjusting to being out there and really having to strengthen our own personal marketing and sales muscles in a way we haven’t had to since probably 2019.
Shawn Busse:
In terms of your marketing strategies and getting in front of customers, where are you at today? And how has that changed?
Cameron Madill:
The biggest thing that’s changed is we are actively seeking prospects. With only three to six new clients a year—actually, I should say three to six new redesigns a year. So if we get two or three existing clients to build redesigns, we get a couple really top-notch referrals from referral partners. We might have literally zero-percent capacity. And that was the case. We had a point in 2021 where we had to tell people, “We’re really sorry. We literally cannot work with you, even if you’re willing to wait 12 months, because we just don’t know when we’ll have capacity.”
I’d never had to deal with that before. And it sounds like kind of a fun problem to have, but it really kind of sucked. Because we had people coming to us who were referred by a client or a partner, and they were kind of pissed. You expect if someone has a going concern of a business, they’re going to at least be interested in the idea of working with you.
Loren Feldman:
Cameron, what stopped you from hiring people or doing whatever you would have had to do to be able to take on those clients?
Cameron Madill:
That’s that 20-mile march, right? It’s like, “Okay, we’re gonna hit our growth target. We’re gonna hit our profitability target.” And so we don’t want to overgrow and have a degree of breakdown that results in problems one, two, three years in the future because we got a little too greedy.
Shawn Busse:
Yeah, I’m curious, the firms that really took on that work in the heyday times, I’m guessing they’re probably laying people off right now.
Cameron Madill:
Yeah, I mean, I don’t know what’s going on inside some of our competitors that we pay reasonable attention to, but it’s clear that—and we’re not immune to this by any stretch—some of them have had some real pains from just taking on more than they could handle. And I don’t know if that’s resulted in layoffs, or maybe it’s just been harder to retain people in general. And so there’s a kind of churn happening.
But back to the marketing question, I just want to say, Captain Obvious: We’re going back to conferences. We’ve done a lot of that over the last year and a half. That’s really been beneficial for us. And then, we’re very much a purpose- and impact-driven company. I always love that notion that profit is not the purpose of business, any more than air is the purpose of life. But it is a necessary precondition to survival. So, we obviously very much have that need to be successful financially to do anything else. But purpose matters a lot to us.
And as a certified B Corp, I think one of the shadow sides of that, and having so much business opportunity coming our way, was I think our marketing got a little too focused on impact. It’s one of the things that differentiates us from our competitors, but at the end of the day, we need to be the credit union marketer’s best friend—not the chief impact officer’s best friend. We’d like to do both. And we want to strike that balance, but I think maybe we went a little bit too far on the impact side. And so we’ve been trying to really focus on generating high-quality content and presentations and podcasts and everything else that is at least 50 percent going to be super high-value, practical, applicable content for a credit union marketer, so that that natural linkage is made when you start thinking about a website backed by PixelSpoke.
Loren Feldman:
So, when did you start thinking about your ownership model? What triggered that?
Cameron Madill:
I started thinking about it relatively early in my career when I started getting into some marketing agency groups, and I started meeting different marketing agency owners. I don’t really watch movies very much, but it was one of those movies where it’s like you’re in the multiverse, or whatever. And it was kind of like: Here’s all these folks—I’m in my early to mid-30s—men and women in their 50s and 60s, who own agencies and kind of being like, “Do I want to be this person? What would that be like? Do I want to be that person?” And I started just seeing a lot of folks who, what they would say, was that they were kind of trapped.
They had an agency that supported a good lifestyle. Maybe they had their name on the company. There’s a kind of ego and prestige in being an owner/CEO of your own company. But for a lot of them, it just felt kind of like the heart and soul and passion that they had for their work had left the building long ago, and they were just kind of hanging on, for lack of a better option. And so, I think I started just sort of thinking about myself in my 50s. I love this analogy from an event I was at last week: Have you guys ever been to a party, where you’re having a good time? It’s loud. There’s drinking. It’s fun. And then someone turns the lights on. You look around, and it’s just like: Holy crap! Someone’s throwing up in the corner. Someone’s sleeping on the couch. And there’s just garbage everywhere.
So the whole idea is, we all exit our business at some point. And the only question is: Do we do it willingly, feet first? Or do we get tossed out headfirst? And so just thinking about beginning with the end in mind, what’s that going to look like for me at PixelSpoke? And then I started looking at folks who sold their companies and all the various different configurations that can take, and nothing really resonated for me.
So I just felt I knew the end was coming. I didn’t want to wait to do this until I was in my 60s. And so it’s like, what’s a way I can do this that feels like it would be in integrity with all the stakeholders—including my own personal needs, but also our clients, our employees, the people who are a part of our impact work? And so that was really what I was starting to look for in 2016-2017, when I stumbled across the worker co-op.
Loren Feldman:
And when you say you were looking for it, was this a kind of an organized search where you were deliberately seeking out people to talk to about their experiences? Or was it more just when it occurred to you, you gave it some thought?
Cameron Madill:
I can say with clarity it was absolutely not an organized search. It was just kind of an intuitive thing. You know, there wasn’t really a hurry either. I mean, I liked what I did. I love our team. I really love our clients. I think what it was is that I’d seen too many owners who got to a point of just hating their companies or being desperate. And then they just did what desperate people do. They just kind of found the first possible escape route. I just didn’t want that to happen.
Loren Feldman:
As you were exploring these options, what was the first thing that you started to think might be the right approach for you?
Cameron Madill:
I wrote this all down somewhere, but it’s kind of common sense, right? You can find some kind of merger to a friendly. You’ve got these big conglomerates that roll up marketing agencies. You can try to be a strategic acquisition. That probably would have been the best way for me to maximize the sale price in our space: selling to an online banking company or some kind of big fintech.
There’s also the option to sell to a few key internal people, the kind of golden handcuffs thing. And none of those resonated with me. None of them felt right. None of them felt like they had a really strong chance of really preserving our purpose and culture and values and the value that we deliver to our clients. And so, when I stumbled across the worker co-op model, it just felt right in every way. Then we did a very detailed kind of discovery process. But every step along the way, it just sort of confirmed: Yeah, this will have challenges like anything, but this is the right path for us.
Shawn Busse:
I imagine you stumbled on to ESOPs at some point. Did you look into that? And if so, what was your assessment there?
Cameron Madill:
Yeah, you know what’s funny? I had heard a lot about them. And we’ve been open-book management since 2007, or something like that, maybe 2008. That was a fun time to start that, as you can imagine. [Laughter]
Shawn Busse:
Here are the numbers! They’re terrible!
Cameron Madill:
You know, in that world, you go back to Jack Stack and the Great Game of Business, and Corey Rosen, who does a lot of stuff for the National Center for Employee Ownership. There’s a lot of amazing work in that space. And a lot of it, it’s like, “Hey, you do open-book management. You want to go to the next level.” Like, you have to have employee ownership, and a lot of it was connected to ESOP.
But my basic understanding then and now is that the ESOP is for much bigger companies, that you have to be 5 million in revenue. And you know, I’ve heard numbers like a million a year in EBITDA. My sense is it’s meant for bigger companies. It also didn’t really speak to me, in that it’s really about maximizing the long-term dollar value of the company for the employees, and it doesn’t have what, in the B Corp space, we talk about as mission lock. It doesn’t really say very much about the purpose.
And so, actually, part of the way we designed it is like we have some poison pills in there, that if the worker owners ever want to sell the company, they don’t actually get that much money. Whereas [with] an ESOP, my understanding is they’re legally required to have a sale opportunity to maximize whatever is the biggest financial return for the workers. So I wanted something that would balance multiple stakeholders, not just dollars into the pockets of the workers.
Loren Feldman:
You were ahead of the curve on that, I think. I’ve talked to a lot of business owners who didn’t fully realize that until after they’d done the ESOP.
Cameron Madill:
Well, they probably have bigger companies, too, in fairness, right? So maybe I would have gone down that path. I don’t know. But yeah, it just didn’t feel like it was right for us. I think it’s a really wonderful thing. But I think, ultimately, it’s kind of like a retirement plan on steroids. And I think I am really attracted to the elements of teaching and practicing and living democratic governments—not democratic management, not that there’s anything wrong with that for people who do it. But that doesn’t actually really appeal to me or us.
One of our co-owners wrote this great article about going from renting a job to owning a job, when she became a co-owner at PixelSpoke. And she sort of drew the analogy to when she bought her first house and how her behavior in the neighborhood changed from an apartment. And so I think with an ESOP, maybe it’s like a really nice condo in a building where everything is taken care of. But a worker co-op is really much more, you know, they talk in the co-op space about rights and responsibilities. And with worker co-ops, like the co-owners really feel both the rights and the responsibilities, I think, to a deeper level than you do in an ESOP. All my perception, though, of course. I don’t know a ton about ESOPs.
Loren Feldman:
How did you get interested in the co-op model?
Cameron Madill:
It was actually an event. They call it the Champions Retreat for Certified B corporations. And it was a guy named Blake Jones, who was one of the co-founders of Namaste Solar out of Colorado, and we had been working together on B Corp leadership stuff, so we never really talked about our companies. And then, I knew Namaste Solar was pretty big, like a couple of hundred people—an order of magnitude bigger than us.
And so it was one of those funny moments where we were always working together on other stuff. And I saw him a bunch at this conference, and I was like, “Hey, so are you guys a worker co-op?” And he was like, “Yeah.” It’s like, I’d heard the intros, but it never really clicked. And that was when I was like, “Could we do that? What does that even mean?” And I think it really intrigued me that you could have a 200-person-plus company that was a worker cooperative. It kind of just did not fit my paradigm of how business worked. And that was what sent me down that path of really exploring. That was my entry point.
Loren Feldman:
So I’m guessing a lot of people listening to this have had no experience whatsoever with a worker co-op. What is a worker co-op?
Cameron Madill:
One of the things that I find really helpful when explaining this to people is: We all kind of know what a co-op is, but we don’t know the different kinds of co-ops. And so one of the ways it’s traditionally explained—and I learned this on our journey—is that there are four main types of co-ops. You have consumer co-ops, which we’re all familiar with. Those are things where the customers of the business are the owners. So: REI, credit unions, a lot of food co-ops.
And then you have worker co-ops, where the people who work in the business are the owners of the business. And then you have purchaser co-ops, where a bunch of entities come together to aggregate their buying power. So you typically have a bunch of different businesses come together and form a co-op to purchase things at scale. And then you have seller co-ops. You have a lot of agricultural co-ops like that. A bunch of farmers come together, and then they have an umbrella brand so they can market and sell and get some of those efficiencies that they couldn’t individually.
So worker co-ops are one of those four kinds of cooperatives, so a business where it’s owned by the workers themselves. The workers will have some kind of eligibility requirements. Typically, the first day you work for the business, you don’t become an owner. But it could happen very fast, or it could happen over multiple years. And then the co-owners, the members of the cooperative, elect a board, and then that board, in turn, governs the top executive officer of the business. That might be a really convoluted way to explain it. But that’s my first take. What do you think, Loren? How can I clarify that?
Loren Feldman:
I’m curious about what you said before, about it not being a democratic management system. But you are reporting to this board chosen by the employees. Do you feel like you have a boss? Do you still feel like it’s your business? How do you think about that?
Cameron Madill:
I mean, they can fire me. Yeah, of course I have a boss. I mean, they set my salary. I think as the former sole owner who converted to a worker co-op, there’s a lot of goodwill. So I hope they won’t fire me. But yeah, I absolutely have a boss. This happens all the time in small companies, of hat-switching. Like, I’m in a meeting. Am I in this meeting with my sales hat on, or my CEO hat on, or whatever other role? And this kind of adds another piece of hat-switching that needs to happen.
So there’s a lot of work in worker cooperatives, especially, to help everyone in the company understand: What are the different hats we’re wearing? And in any given context, which of those hats are we all wearing? Because it certainly injects this interesting dynamic. If Loren and Shawn and I are all co-owners, and we’re on the board of this cooperative, if we’re meeting, maybe I’m the CEO, and you guys report to me. And that’s the meeting we’re having. Maybe it’s a board meeting. And one of you is the president of the board. And the other two were just kind of normal members of the board. So there’s a lot of additional clarity that you need to create to not kind of muddy the waters in a worker co-op.
Loren Feldman:
Shawn, you’ve been open on the podcast about your thoughts about what you might ultimately want to do with your business. How is this landing with you?
Shawn Busse:
I mean, I like a lot of what Cameron has done. I’ve watched him on the journey, and I’m sure it’s not without its challenges. But I think there’s something to be said for the recognition of the employees who’ve helped build that organization and giving them a stake in the game. Correct me if I’m wrong: They actually have to buy in, though, right? Is that correct?
Cameron Madill:
Yeah, it’s a very flexible model. There are seven international cooperative principles that every co-op subscribes to. And perhaps the most important thing that’s going to happen is, if you become a worker co-op, you have a board, and the board is primarily drawn from the workers. And the board now governs the business which, like any good board, should be very kind of high-level, mountain-top type stuff—not micromanaging.
And one of the key design decisions you look at is, there are co-ops where you show up as a worker and you pay $25, and 30 days later, you’re an owner. And maybe you’re on the board or you can be elected to the board, or whatever. I’m very much on the other extreme. I think we’re not the most extreme worker co-op, but we’re, I’m sure, in the top 10 percent of restrictiveness. So I shouldn’t say restrictiveness. It’s just that I really want to make sure if I’m going to own something with someone else, I really want to make sure that they understand what we’re all about and that they’re committed and that they’re not doing it just for ego or financial gain.
So we have a $10,000 buy-in. And you have to have worked with the company for at least three years, and we have a really rigorous six- to 12-month training program. So we set the bar pretty high there, but I think that’s kind of obvious why we’d want to do that. Yeah, it’s a lot different than an ESOP, where you just by virtue of working at the company, you are a quote-unquote owner. That’s a very different philosophy.
Loren Feldman:
What changes at a worker co-op? What were you referring to before when you said that there really is a sense of responsibility and obligation for the worker owners?
Cameron Madill:
A few things I’d like to talk about: One of my real misunderstandings was there’s not like one conversion that happens when you become a worker cooperative. There are really five separate conversions that happen. And I guess I’ll just briefly list them: There’s the financial conversion, there’s the legal conversion, there’s the operational conversion, there’s the cultural conversion, and then there’s this kind of integration conversion. You go from being an awkward adolescent to being a more mature co-op.
When we are bringing someone on as a new co-owner, the new job—just like you bring a new employee on, and whatever their job is, you want to make sure that they have both the skills and you have really good training to bring them up to speed for your organization—when we bring on a new co-owner, we’re really bringing on a new board member. So we need to be able to train them to be a really good board member, and that entails a lot: financial literacy, HR, strategic savviness, understanding the way agendas are structured and why meetings are run in a certain way, and all the protocol that goes along with board meetings. But that’s the number one thing that changes for an individual employee. And then, Loren, were you asking about the organization as a whole as well, kind of what changes?
Loren Feldman:
Well, I was curious, first, from the employee-owner perspective, what it’s like for them, but hearing your answer there, the thing that intrigues me most is, it sounds like you’ve made the process of hiring a lot more difficult. It’s been very difficult to hire people in the last couple of years without training them to be board members. What’s your experience been?
Cameron Madill:
Oh, I see. Great question. Let’s see. So we haven’t made hiring any more difficult, though I think the stakes go up. Because everyone you hire, it was always super high. But now you’re asking yourself not just, “Will this person be a great member of our team and culture? And can we see them here for three-plus years?” and that standard stuff. You’re also saying, “Do I literally want to own this business with them?”
Shawn Busse:
Wow. If you do the time and pay 10K, you get to become an owner. There’s no other vetting process, correct?
Cameron Madill:
I mean, the board votes people in or out, but—
Loren Feldman:
You can fire people, right?
Cameron Madill:
You can. Of course you can. But it’s harder to fire a co-owner. That is a board thing, if you want to fire a co-owner versus a regular employee. And if it turns out someone is not the right fit, and they want to become a co-owner, you can imagine that gets even more complicated. But we haven’t, fortunately, had that issue.
From a hiring standpoint, all the stuff I was telling you about, Loren, that happens after two-plus years on the job. We give people a single, one-hour module on worker co-ops when they’re a new employee, and we don’t burden them with anything else. We want them to figure out how to be really great at their job. But I’m just saying that in the back of our mind, we know that they might be a future co-owner, and that two years from now, they’ll potentially be diving into all that education around being a great co-owner and board member.
Shawn Busse:
Has anybody backed out, or flamed out?
Cameron Madill:
Oh, I mean, all sorts of things. Everything didn’t work. We converted in January 2020. We kept hearing how we were so on it and professional, and setting the bar high. And I remember just thinking, “Holy bleep! If this is setting the bar high, I can’t imagine what some of these other companies went through.” I mean, granted, we went through the COVID pandemic. My wife and I had a child in May of 2020. We really kind of thought we’d just really go for it in 2020 with all the things. [Laughter]
But this is one of the things I’m most proud of in my entire life, this change that we have made. I make the analogy to parenting. It is hard. It is a lot of work. It is birthing, really, a brand new company. Versus, I do think that’s where something possibly—I’m not an ESOP expert—like an ESOP, or like somebody who says, “Hey, we want to go open-book management, or have a bonus plan.” There are things you can do that are much less holistic than this.
But when you start bringing people on as owners, you have to have a really good answer for everything. So if we thought compensation was hard before, I think we have an amazing system now. But man, we had some really hard conversations the first several years when people first saw the full list of everyone’s salaries at the company. And I don’t think it’s because anything that we were doing was wrong. It’s just really hard. And there’s just a lot of skill that we’ve had to develop there. And I think we’ve had to get a lot more rigorous about how we think about compensation and a lot of other things as well.
Loren Feldman:
For our listeners who are still with us, Cameron, and are still listening after the point where you said that you’ve divulged the salaries of everybody, tell us about that. Is that an option for co-ops? Or is that baked into any co-op model, and that’s just part of the way it works?
Cameron Madill:
I mean, I think it’s baked into any co-op model. Like if you’re an owner, you get to see the books. Isn’t that kind of common sense?
Loren Feldman:
Well, in open-book management, you don’t have to, and most companies—
Cameron Madill:
Right, they’re not owners.
Loren Feldman:
Right. Exactly. Exactly.
Shawn Busse:
I guess you could hide that from employees who are not yet owners, right? You could have a two-tiered system, if you wanted to.
Cameron Madill:
And that’s what we do. Yeah, that’s what we do. But I think when you become an owner, you get to see the books.
Shawn Busse:
Something I’m really curious about, Cam, is sometimes when I run across ESOPs, I notice the difference between them and, say, a founder-run business, is they’re very reluctant—and this is a broad statement—to make bets on things that are hard to quantify, or risky: the kind of bets that I think owners are willing to make that sometimes don’t work out, but sometimes pay off in big ways.
So that can be like a strategy bet or a marketing bet or going into new markets. So I see a lot less risk-taking within the ESOP type of businesses. And I’m curious how you think about that, and how you think about ensuring that there’s a culture of innovation and investment in the company, when you’ve got more people saying, “Well, that’s my money now.”
Cameron Madill:
It’s a great question. I don’t know how to speak to the industries as a whole, but I think one of the neat things about co-ops—and this was something we learned from one of our guides—is that in a lot of traditional businesses, including founder-led businesses, you have this person or small group of people who come up with these visionary ideas. And then they come back and they do change management, AKA trying to force it down everyone else’s throats. And co-ops kind of reverse that. And it’s pretty messy, right?
It’s been amazing to watch how we kind of flip that. We do the change management upfront. This is what one of our advisors told us. And then like, click, you get through the change management. You decide what you’re going to do. And then we just go. There’s zero gossip, all that stuff where people are coming back saying, “Oh, I told you so. I didn’t think that was going to work. Oh, I never really believed in that. I thought we agreed on this. But now these people are going off and doing that other thing.” I’m overstating. It’s not zero. But compared to what it used to be like, it’s almost zero. And so I find that degree of intense alignment, and the wisdom and creative thinking by really flipping the pyramid and getting all their input upfront, it’s just incredible.
Now, I also think you’re absolutely right, that there’s a reason these kinds of founder-led models can be so effective. It’s just that democracy, or even just highly-inclusive approaches, tend to be slower in certain ways. And so, I totally get why this doesn’t work for a VC-funded company. But I think it’s a great question. It feels a little bit philosophical to me. I think I am more interested in the impact PixelSpoke creates and the value that it creates in the world. And so innovation is just kind of a means to an end. But if we’re generating a ton of value and impact, I don’t think I really care if we’re innovative or not. Now, I think you probably have to be innovative to do that, but it’s not really a leading end, in and of itself, for me.
Shawn Busse:
Well, I think you set up this conversation a lot with the 20-mile march, too. Your philosophy is one of steady improvement. And that can be very different than like, “Hey, let’s try this big crazy idea over here that could 10X our company.” That’s just a different system, a different approach.
Cameron Madill:
Yeah, I’m not sure our culture could scale 10X.
Loren Feldman:
Cameron, has there been a time where you wanted to go in one direction, and the board chose another, and you had to go along with it?
Cameron Madill:
Yeah, there’s been a lot. I’ll see if I can think of a specific one.
Loren Feldman:
And how painful was it? If it was painful.
Shawn Busse:
It couldn’t have been too painful. He can’t remember it.
Cameron Madill:
Yeah, actually, I will share one that I think is pretty cool, that cost me a lot of sleep and made me really angry. We removed merit from our raises philosophy. So we removed that kind of subjective piece where someone’s manager gets to say, “Hey, Shawn and Loren, these were their numbers. They’re in the same role. But I just feel like Loren brings a little something extra.” Like, maybe it’s contribution on strategic priorities, or it’s innovative ideas, or it’s glue in the culture, or who knows what?
Loren Feldman:
I think you’re right on, Cameron.
Cameron Madill:
Yeah, I mean, clearly, if I have to pick one of you two, I’ve known Shawn for a long time, but—
Shawn Busse:
Damn it. [Laughter]
Cameron Madill:
We just removed that. And that, to me, was just so antithetical to how I think of business working. But also, reflecting on it way over a year later, I went and did even more reading, and I think they were absolutely right. And I think it strengthened the co-op. I think there are reasons why subjective merit raises work really well in some contexts. And I also think there are ways in which they’re really destructive and detrimental to culture and productivity.
So anyway, that was one example. And I was just straight up out-voted. And I tried to politick and throw my title around and whatever. People listened to me. They just disagreed with me. And I will say, one of the most beautiful things about this model—and you know, I’m stepping down as CEO to move into a coaching/advisory role, so this gives me so much excitement and enthusiasm for the future of PixelSpoke—is they just keep consistently making the right decisions. Maybe even, and especially, when I disagree with them.
Loren Feldman:
What’s the financial aspect of this? Did you essentially sell the company? Did you get the payout like you would have with an ESOP? How did that work?
Cameron Madill:
So, obviously, caveat, I’m not a financial adviser or accountant or anything like that. But my understanding is there’s no real tax benefit compared to an ESOP. Yeah, it’s a little weird. Assuming you stick around, some owners, when they sell it, when they convert to a co-op, they just peace out right then and there. That’s not what I wanted to do. But for the most part, yeah, you kind of sell to yourself.
So like, “old you” sells to “new you” as part of this ownership group. And you can do that in a bunch of ways. You can bring in outside financing. You can bring in outside debt through a credit union or bank. You can do a promissory note through the company. What we did is a very cool model, which was maybe a little simpler from my perspective, where we just converted. We basically created a bunch of preferred stock, which was mine, and the preferred stock paid out like six and a half percent a year. And it gets paid first, before any of the worker owners, but it has no controlling rights. So it’s kind of like this big block of stock that gets a guaranteed payment. And the preferred stock eats before the worker stock eats, but then the workers get kind of all the remaining upside. So that’s kind of how you balance the interests of those two.
And then over the next couple of years, we sold a lot of that stock off to impact investors. And then, because I was a little slow and this is kind of a new world, we actually realized, duh, we should just be buying these preferred shares down because we have so much cash on hand. And it’s dumb to be like paying out six and a half percent on these shares when we could just buy the shares down and return more money to the worker owners. That’s a lot of details. There are four or five standard ways, but yeah, basically old you is selling to new you as part of this cooperative ownership group.
Shawn Busse:
How did you value the company?
Cameron Madill:
I did a very conservative valuation with our CPA. And I think it was like the last three years of EBITDA plus assets minus—we didn’t really have any liabilities. And then I think there was like a 40-percent discount, which is pretty generous for being a privately-held company, and maybe we called it a goodwill discount. I don’t know.
Anyway, I did not do this to maximize my returns. I think I certainly could have asked for a bigger price and gotten it from the ownership group. Certainly the biggest return would have been a sale to a strategic partner in the credit union space. But I also think it’s important to highlight that I feel very grateful, and I did very well. So I think, to me, it’s all about balancing multiple stakeholders. And if my personal finances were my only stakeholder, it probably wasn’t the best decision. But I felt like I got to kind of serve the needs of all stakeholders very fairly.
Loren Feldman:
Given your possession of the preferred stock, does it make sense to say that you continue to own a certain percentage of the business that you’re gradually selling down? Or how do you think about that?
Cameron Madill:
It’s a great question. It’s kind of a funny vehicle. I think, yeah, it’s absolutely true to say that I still own—I don’t know what the numbers are at this point—maybe about 50 percent of the preferred shares at PixelSpoke. It’s just important to be clear that they carry no voting rights. So I have one of 10 co-owner shares, which all have one equal vote.
Loren Feldman:
But you said you also sold some to investors. Is that right?
Cameron Madill:
Yeah, so of the preferred shares, I used to own 100 percent. I granted a small number of them as kind of a loyalty bonus to some very long-tenured employees. And then we sold off several hundred thousand dollars to impact investors. And then we actually switched to just buying down all of the preferred shares so that the total number of preferred shares has shrunk by almost half since when we converted.
Loren Feldman:
Do the investors have a seat on the board?
Cameron Madill:
They don’t. I mean, one of the key things about a worker co-op is, it must be governed and controlled by the workers. Typically a majority of the board must be worker owners. But we do have provisions—we could have an outside investor. A credit union expert would be another kind of obvious person to have on the board. We haven’t done that yet. And that’s just purely not wanting to add unnecessary complexity.
Loren Feldman:
What’s the typical reaction you get when you meet other business owners and you tell them how this works?
Cameron Madill:
You know what’s super weird, Loren? They’re super interested. I thought no one cared. I thought kind of like weird Portland hippie folks would be into it, and no one else. I had never talked about this publicly until this year. I wasn’t hiding it. But I’d never done any kind of group presentations, and I’ve done three this year. I’ve been kind of stunned that they’ve been, in some cases, too full for additional people to even show up to the presentation. I think it speaks to a hunger for alternative paths for business owners.
I think in a lot of ways, sole proprietors or small privately-held ownership groups know there will be a next chapter. And the options really aren’t that good. So, I just think that this is one of a small number of options that we have, for our exit from our business. It’s going to happen to all of us, right? This is not optional. It’s like death—it’s gonna happen to all of us. Maybe that’s dark, but it’s gonna happen. And this might be our single biggest legacy as a business owner: how we think to transition our ownership to whoever the next owner or owners will be. And I think we owe it to ourselves, as business owners and entrepreneurs, to really understand all those models, to figure out: What is the thing that’s going to be in deepest integrity with our own personal purpose, values, and needs?
Shawn Busse:
It’s interesting. It really sparks a thought, Cam. You see the Baby Boomer generation is this really large cohort—many of whom own businesses—and they’re retiring, dying, etc. Are there enough buyers for all those businesses? And going forward—
Loren Feldman:
We know the answer to that.
Shawn Busse:
I think it’s no.
Loren Feldman:
It’s definitely no.
Shawn Busse:
It’s no. And I just wonder if you’ve kind of stumbled onto… This is a path that could be more sustainable, at least as an option, for the right type of person. I don’t know if you’ve thought about that.
Cameron Madill:
Isn’t it called the gray tsunami? I mean, I think there’s this awareness that the sheer number of businesses where the owners are owner-operators, and they’re just going to be retiring in the next five to 10 years. And yeah, there’s absolutely not enough buyers for them.
And I think I might even go back and amend my previous statement. I think with more than a little bit of pride, we had a pretty sexy company. It was a small company, but we had some pretty cool options, from a sales standpoint—or really, I did, as a sole owner. There are also a lot of businesses that don’t really have any options. And this might literally be your best financial option: to figure out how [the business] can get to the people who are inside of your business, who know it, who love it, who have a deeply vested interest in it because it’s their livelihood. Those might actually be your most lucrative and your best buyers for your company, including, in some cases, a five- or 10-year promissory note, or earnout, or whatever. There are a lot of ways to structure it.
And I know there are a lot of people working in some of the co-op associations and at a policy level of: How can we get more support, to get education, to all these Boomers who will likely be retiring so they can be more intentional about how they transition their companies and to really promote employee ownership? We haven’t gotten into this, but employee ownership does wonderful things for the world. And if you’re like me, and you believe that inequality is at the root of basically every social ill and problem that we see in our society today, that it basically blocks the better angels of our nature—our empathy, or vulnerability, our generosity—employee ownership is an antidote to all of that.
Loren Feldman:
Is it too late for a Baby Boomer who is part of the gray or silver tsunami to consider this option? What I’m really asking is, what are the requirements for a company? What makes a company a good candidate to choose this path? And would it work for someone in that situation?
Cameron Madill:
It absolutely would. I know there are a ton of people working on this specific issue, and there are a lot of programs where there’s funding available to pay for consultants, where people are really looking at a model where—unlike what I did, where I’ve stayed for four years after the conversion—the owner just wants to get out. They want to convert, and they want to leave.
And there’s a lot of support in the form of grants and other kinds of assistance out there. There’s a great group out in the Bay Area called Project Equity, which is focused on this. There’s the U.S. Federation of Worker Cooperatives. There’s just a bunch of great groups out there. A lot of things happening on state and city levels. So it’s absolutely not too late.
Loren Feldman:
Does the business have to be profitable at the time of transition?
Cameron Madill:
Oh, yeah. Thank you. I was like, “I knew I had something else I was trying to say!” And Loren, you read my mind. The big caveat, right? I’m not an expert in this. I’m an expert in the PixelSpoke cooperative. My sense is, you can manage just about any situation, or most situations: a struggling business model, low profitability, etc. But I think where it doesn’t work is if you have really bad retention, because the worker co-op is made up of the workers. And if you have the kind of company where no one’s been there longer than six months…
We have a three-year requirement to become a co-owner, and we have a six- to 12-month candidate period with extensive training. If everyone’s leaving after six months, it’s pretty hard to see how you’d build a stable worker co-op out of that. One of the phrases I’ve liked, that I’ve heard, is that in worker cooperatives, like our business model, is trust. And you can’t have trust without meaningful relationships and some degree of longevity. So I would imagine that’s kind of the only true dealbreaker. But otherwise, I think the stronger your business model, and the higher your profitability and all that stuff, the easier it will be, but I think that that kind of committed core of workers who will carry the business through that transition are probably the one critical element you have to have.
Loren Feldman:
Have you lost any worker owners?
Cameron Madill:
Ooh, good question. Not really, but I’ll say one thing that happened that was really cool was we had a woman, Hannah Ferber, who is amazing—was and is amazing—still a good friend. And she had been with us for almost a decade. And so she was going to be part of this founding group. And we’re all kind of scared, right? We’d never done this. I mean, we had advisors, but we didn’t know what we were doing. And she was one of those people who made us feel safe, because she’s really, really good at what she does. And she’s a beautiful human on top of it.
And then she actually left, after a decade at the company, maybe four months before the conversion. We had announced it to the whole company. We’d said, “This is the initial group.” And it was definitely one of those sharp intake of breath, and everyone’s kind of taken aback. But as amazing as she is, and as much as she is and was missed, it was actually, I think, really great to have someone pull out a moment before they became an owner. Like, we’re not trying to lock people in.
And she got this awesome offer for a thing that just was—I mean, when she told me, I was like, “Yeah, that makes sense. That feels like the right next step for you.” And I’m still kind of mad at that company for poaching her, but that’s life, right? And so I think that just taught us a really good lesson that, at the end of the day, the co-op is far bigger than any of the individual people. And as long as we kind of maintain a healthy and committed core, we should celebrate and embrace anyone who finds a right next step for them. Because, ultimately, we did this co-op conversion for the ultimate betterment—yes, of the world, yes, of our clients—but of our workers. And so, if there comes a point where the next best thing for them is outside of the cooperative, we should be their biggest fans. So that being said, we have not lost a co-owner since the actual conversion, though I will be the first at the end of the year.
Loren Feldman:
Shawn, are you sold?
Shawn Busse:
Yeah, I mean, like Cam said, the more options there are out there, the better. There are really great businesses out there for which there probably isn’t a great buyer. There are a lot of businesses that nobody really wants to buy, yet they’ve got great employees, and they’re doing something valuable. And I’m really aligned with Cam on, I think, wealth inequality, is cancer. And I think anything that can be a force against that is a good thing. And I think more people need to know about it.
Loren Feldman:
Cameron, do you know what you’re going to do when you walk away?
Cameron Madill:
I feel like I’m in that phase at the end of college when I would get together and people asked me what I was going to do. And I would just spew all these ideas at them, and they would get this really nervous look on their face and want to go call my parents to say it was so sad that they’re somewhat promising child had turned into a totally lost soul.
But I can give you a quick overview. I’ve been doing training around marriage counseling all year. I think the through line in my entire career is relationships. I’m fascinated by them. So I started doing couples workshops. I don’t know if that’ll be something that grows or stays steady or fades away. But I really love that work—helping couples to better connect. I have had a few nibbles around doing consulting to help companies become worker co-ops. Similarly, I don’t know how much I want to be a consultant. But there are a couple of really inspiring companies, where I think if this could really inspire big systemic change, that it’d be kind of an honor and a pleasure to be part of it.
And then the last thing I’ve started as a research project that’s sort of very close, near and dear, to my heart. My wife is also an entrepreneur, so it’s a research project around entrepreneurial couples and thinking about: What is it about the entrepreneurial couple that is different from most committed relationships? And what lessons and learnings and support can we provide to couples where one or both are entrepreneurs to have a more happy and fulfilling and loving relationship? So that’s my smorgasbord. You asked. I warned you. I can promise nothing 12 months from now, what it’ll be, but that’s kind of what I’m thinking now. [Laughter]
Loren Feldman:
That was a really interesting answer, none of which I would have anticipated.
Cameron Madill:
I aim to please.
Loren Feldman:
Well, you did it. My thanks to Shawn Busse and Cameron Madill—and, of course, to our sponsor, the Great Game of Business, which helps businesses use an open-book management system to build healthier companies. You can learn more at greatgame.com. Thanks, everybody.
