Innovating business ownership models

Something I like doing for fun is sketching pie charts of ownership models for businesses. Yes, I am a business geek!

In the standard model today, the ownership of a business is something separate from its operations. The role of investor/owner doesn’t necessitate any involvement in actually running a company or delivering any value for its stakeholders. Owners have a right to appoint the directors and have the right to all of its profits. As I’ve written about before, this doesn’t do much to create fair and happy societies but as an entrepreneur, I am excited about how we can evolve new business ownership models. The goal is to engage more stakeholders to create better businesses that innovate more; provide better service and more value to customers; create better jobs; deliver more value to society as well as outperform traditional businesses in financial terms. I think we can do much better than today’s status quo.

Most of the pie charts I’ve been sketching are for new start-up businesses and combine three types of owners:

1. Private investors: This group is fairly traditional, but there’s no doubt that private investors can provide the capital necessary to get new ventures off the ground, especially in today’s market where lending to start-ups is difficult. However I see two key changes to the norm. Firstly, a commitment from investors to ALL of the outcomes of the enterprise (in terms of human, social and environmental capital, as well as financial returns.) And secondly, a commitment to eventually sell their stakes to the following two groups of owners, once they have accumulated a fair return for their investment and risk. On the surface this may look like sacrifices compared to investment purely for capital gain, but I believe that businesses with these more innovative ownership models will outperform traditional businesses, more than making up for the restrictions places on private investors.

2. Employee-owned trusts: Giving the employees a meaningful stake in the business from day one sends a powerful message that they are not working for someone else’s benefit, but they are true owners, partners and stakeholders in the venture. This changes the mindset of an employee who will see it as their business. This increases motivation and productivity. I reckon 30% is about right, to leave enough room for other investors.

3. Crowdfunding: There is a huge amount of innovation going on right now around sourcing finance in small chunks from large groups of people. Popular platforms like Kickstarter are helping new ventures to raise anything from hundreds to millions of dollars from future customers, friends, family and supporters. I think there’s something particularly powerful about having customers as part owners in a business. Imagine a customer in a restaurant who has bought a very small stake in the business. Perhaps they don’t have a great experience there one day, but instead of feeling like an annoyed customer, they feel like a disappointed owner. Very different mindset that wants to focus on making sure the problem is fixed for next time.

Putting it all together

Say a new company is founded with an initial £50,000 of capital from private investors. These shareholders own 50% of the company, valuing it at £100,000.

Next, an employee-owned trust is set up. This is a separate legal entity from the company and it owns 30% of the shares, including all voting and other shareholder rights. Employees can elect board members, giving them real power and influence right from the start. A very powerful way to attract and motivate employees.

A second trust is set up (I call this a Community Trust) which owns the remaining 20% of the shares. These shares are purchased by way of a loan from the company, so the Community Trust initially owes the company £20,000. The Community Trust then sells a limited number of memberships, say 500 at £40. This may take a few years, or it could use a platform like Kickstarter to sell the memberships before the company launches. This repays the loan and adds capital to the business as well as building a loyal base of fans. Once the memberships are sold out, the members can elect their own board member and receive ‘dividends’ – a share of the company’s profits in the form of vouchers that can be spent there.

From the outset, the private investors agree that they can only sell their shares to either the employees or the Community Trust. This aligns their interests with those of the other stakeholders.

The obvious objection to a model like this is that the traditional investors on the face of it appear to be giving up a lot of equity and control. Yes, they hold a smaller slice of the pie, but the pie could grow much larger with an engaged base of fans and motivated employees. Plus they have a new route to liquidity for their own investment, by selling their shares over time to the Community Trust (which creates new memberships at a higher valuation) or the employee-owned trust (which pays for the shares out of future profits.) I believe that it will also form a much stronger base of power in the company, with representation from employees and customers, sharing the ups and downs with everyone involved. Finally, for entrepreneurs and investors who want to do something more special for the world than just make some money it creates an opportunity to build a legacy that lasts beyond their personal involvement.

Unhealthy, stressed employees are hurting your business

Sounds obvious, doesn’t it? But how far do most businesses go to create real wellbeing for their employees?

Extensive research and analysis from Gallup shows the impact on business of employee wellbeing, which it defines as five dimensions:

For example: Employees with high wellbeing have 41% lower health-related costs compared with employees who have lower wellbeing. In a firm that has 10,000 employees, this difference amounts to nearly $30 million.

And: People who have thriving wellbeing have a 35% lower turnover rate than those who are struggling; in a 10,000-person company, this represents $19.5 million.

The research is US-centric, and easier to attach financial figures to healthcare because they are usually born by employers, but in the UK, with long waiting lists for treatment on the NHS, and the cost of absenteeism it is just as relevant.

How the Facebook generation wants to be led

Interesting results from a Forbes roundtable discussing how young professionals want to be led at work. They boiled it down to five principles:

1. Empower us; don’t micromanage our talent

2. Sponsor us; serve as role models

3. Allow us to manage our own brand; don’t define us

4. Trust us; don’t question our intentions

5. Challenge us; don’t marginalize us

I think you could sum it up as just one thing: “Set us free” which is exactly the core concept of democratic business.

This is further evidence that workplaces based on democratic principles are the best placed to attract, retain and get the most out of the smart young people entering the workplace now.

How to be an awesome democratic manager in an old-school company

I usually write about transforming entire businesses into democracies. What if you don’t have the power to do this, but would like to realise the benefits to productivity and happiness in your team that democracy brings? Here are some tips for managers.

Old-school companies are secretive by default and only share information with employees when there’s a clear need. This breeds distrust because people fear the unknown. Democracies do the opposite. As a manager in any organisation you can adopt this principle, even if you can’t be as open as you would like to be. Go out of your way to be as transparent as possible about financial matters, strategy and decisions. Look for instances where information is not being shared, but not made explicitly secret and show employees what’s really going on in the company. Transparency breeds trust and avoids conspiracy theories.

Sharing your problems and opening up decision making is another powerful way to build trust. As a manager you don’t have to have all of the answers and solutions. A strong leader isn’t afraid to say ‘I don’t know’ and by doing this, you invite good ideas and a feeling of involvement from your team, plus decisions made with their input will be supported and faster to execute. Involve your team in the things that you are working on and you might be surprised at how much they can help. This is especially true of decisions that directly affect the people on the team.

Understanding what really motivates people at work is well proven by social science but little known to most businesses. Focus your team on these three principles and they will be happier and more motivated at work:

  1. Autonomy: People are most motivated when they have control over how to do their own work. Work with your team to decide what needs to be achieved, then get out of the way and allow them to figure out how to do it. Be there for them as a facilitator, helper and supporter. Not a supervisor.
  2. Mastery: Don’t get obsessed with objectives for performance. Whilst you will probably need success metrics and have to achieve some concrete goals, these are like a scorecard, not a strategy. Instead focus most of your attention on objectives for learning and improving your team’s skills on a path towards mastery. This is extremely motivating and a far more effective strategy for actually getting the best performance.
  3. Connectedness: People are motivated when they are contributing to a higher purpose, together with others. Discuss with your team how their work is helping to make the world a better place for people, societies or the environment (hopefully there is some higher purpose other than making money, otherwise it’s probably time to find a new job!)

Building an informal recognition programme is another very simple but powerful motivator. Take frequent opportunities to recognise great performance and effort as and when it happens, and in person as much as possible. Be very specific in feedback. Not just a ‘great job’ or ‘thanks’ but say exactly what they did well and why it’s appreciated. It has to be genuine. Lead by example to build a culture of feedback in your team by actively soliciting feedback from the team. Reward after the event, not by dangling carrots.

Encourage your team to create its own rituals like the Church of Fail or Ringing the Bell of Awesomeness. This helps you to build your own culture-within-a-culture based on better, more positive principles.

Lobby for change in the organisation. You can start by suggesting that one or two employees come to the board meeting each month, or if you’re not on the board, suggest that regular employees can come along to other meetings that are usually ‘above their paygrade’ to see what’s going on and provide input. The board or senior team will gain from the ‘reality check’ of having regular employees present, and it breaks down fear of ‘them upstairs.’ Question secrecy, making requests for more transparency and communication.

Whatever happens, and no matter how much corporate crap you’re putting up with, don’t ever allow yourself or team to fall into a spiral of negativity and complaining. Become a tribe of happy rebels, not whingers. Push the boundaries of the prevailing culture as far as you can; do things differently within your domain; and be a catalyst for change.

If you begin to work with democratic principles within your team or department, others will notice how much more productive, motivated and happy your team is. When they ask you what your secret is, this might just kick-start a change to make the whole organisation more democratic.

Good luck, and please post your own experiences, questions and ideas in the comments. I’m sure there are lots of other things you can do to be a great manager in a difficult culture.

Building a better economy with more employee ownership

Iain Hasdell, Chief Executive of the Employee Ownership Association has written an excellent call to action for government to facilitate building a better economy with more employee ownership.

In the UK and most of the rest of the advanced world economies we are dominated by publicly traded companies which don’t lead to a fair distribution of wealth. Hasdell writes that 50% of the people in the UK own 1% of the wealth, with the wealthiest 20% owning a huge 84% of the wealth. This isn’t just bad news for people outside of the wealthiest brackets. Other studies have indicated that more equal societies have a higher quality of living for everyone, including the richest. So this isn’t about taking from the rich and giving to the poor – all of society would benefit.

The disconnect between ownership and doing the actual work also creates unhelpful and distracting tensions such as pressure to please analysts and deliver quarterly results rather than building an environment for the long-term that brings the best out in employees and delivers value to customers and society. Employee owned companies are free to do the opposite.

Not only would an economy based on more employee ownership be fairer for the masses who actually do the work, but based on the evidence from employee owned companies today, they are likely to outperform traditionally owned rivals though higher employee engagement, motivation and innovation. This presents a new opportunity for growth at a time when our current capitalist system is failing miserably.

So what can we do about this?

Hasdell wants government to remove red tape and tax disincentives that currently hamper wider employee ownership and also take an active role in educating the business community about the potential of employee ownership. This really rings true for me as someone who has started a business. At various times we considered selling the business, but never even considered selling it to the employees as an option purely through our own ignorance of this being an option, and when we eventually did look into it, the process was off-putting (although not impossible, and I still hope the business will eventually become employee-owned.)

I know that there are many entrepreneurs and other business owners who want to realise some value for their investment, risk and hard work in building their businesses. I also know that many of these people fear the implications of ‘selling out’ – the impact on the employees and fear of the fate of their ‘baby’ falling into the hands of new owners who care only about financial return on investment. I urge these people to consider selling the company to the employees instead. There’s help available from consultants like Baxi Partnership to explore this option and help you through the process.

If you are an employee working for owner-managers, then why not plant the seed about employee ownership? There’s a good chance that they will have never even considered it, but it could open their eyes to a way to realise some value for themselves whilst leaving a real legacy for the employees who helped them to build the company.

I have a new job: Helping a billion people to work in freedom

I’m excited to let you know that I have been asked by Worldblu, the organisation that certifies the Most Democratic Companies in the World list, to help with their mission of seeing one billion people in the world working in free and democratic organisations.

As a BluAmbassador I will be visiting companies and speaking at events, explaining how democracy makes organisations more profitable, resilient, happier and able to do more good in the world. I will be speaking from my first-hand perspective of creating a democratic company myself, as well as sharing Worldblu’s extensive expertise on the subject.

Traci Fenton, the founder of Worldblu is one of the most inspiring people in the business world today. Her energy and passion for democracy is unbelievably infectious and I just knew even a year or more ago that we’d end up working together. I’m so excited to be getting started.

If you are interested in booking me to speak at your company or event from late September 2012 onwards then please see my speaking page or just get in touch.