Some Thoughts on Worker Ownership
On June 6, 2024, we completed the sale of Atredis Partners to Atredis Heavy Industries, a holding company that exists for the sole purpose of managing and funding the Atredis Employee Stock Ownership Plan, which issues shares to all employees using a formula based on salary and tenure, with a heavier emphasis on tenure, so that we can make good on the promises we made in our early days, to the first Atredians and everyone who came after.
Read on for what that all means.
A little over a decade ago, when my cofounders and I started Atredis Partners, I had several friends say to me “are you sure you want to call it partners?”
They told me that other founders who had done the same had regretted it, because “you know, sooner or later, everybody’s going to think they should be a partner.” I laughed and told them that I considered this a feature, and that I thought those other founders were selfish jerks. Still true on both counts.
We are by no means perfect at it, but from the outset, it was a founding principle of Atredis to build something that would outlast its founders, and the best way to do so, in my opinion, has always been to bring other folks in, and treat them as well, partners..
A whiteboard from a founders’ retreat in 2017
That said, despite my big dreams, when we founded the company we quickly learned that as a tiny, bootstrapped startup running off a handful of LegalZoom templates, we didn’t have the VC backing (or, especially, the VC lawyers) to make it easy to to issue shares or options. When we hired our first few employees, like many founders, I found myself promising that one day, I would figure out how to grant them a stake in the company.
In the interim, we implemented a very generous revenue sharing program (no, not profit-sharing, profit is just a knob that boards and CEOs adjust by raising or lowering executive compensation), where folks got a larger share of what they bill as consultants than the house, something we still do to this day.
Over time, we added more and more people-centric benefits like unlimited PTO, a three month life event leave bank that folks earn for every two years of service, no-cost health insurance, 401K (and RRSP for our Canadian folks!) contributions that don’t require a match from employees, and more, all of which aligned with our founding principles and culture of partnership and putting our people first. I guess there’s also a Peloton membership now?
Despite all of that, as we got closer to our ten year anniversary, I found myself thinking more and more about the promise I had made, to make everyone shareholders one day. As we got closer to the decade mark, I let my cofounders know that I hoped we could make that promise real by our tenth anniversary as a firm.
While I initially wanted Atredis to be a cooperative, as I read more and more about worker ownership structures, I learned that in the United States, there are some very strong reasons why becoming a 100% worker-owned ESOP (Employee Stock Ownership Plan) firm makes more sense, not the least of which is that ESOP profits are tax exempt!
ESOPs were created by ERISA, the Employee Retirement Income Security Act, the same legislation that created the 401K and IRA. This is because an ESOP is also a retirement vehicle, a Qualified Retirement Plan per the IRS — only employees are eligible to participate in the plan, and while employees who leave can cash out the shares they’re issued, if they stay at Atredis, and hold onto them until they reach retirement age, the share value is tax exempt, in the same way that your 401K funds are.
While it comes with extensive oversight from the Department of Labor and the IRS, becoming an ESOP can save a firm millions per year in taxes, which frees up buckets of money to put back into your people and to grow. Hard to argue with that.
Reading further, I learned about SunPower and the “ESOPerative” model — creating a sort of “ESOP with Co-Op characteristics,” which fit perfectly with the principles we have ran Atredis on since day one.
I was excited to get the process started, and in early 2023, we started the ball rolling, hoping to make the ESOP transition happen by Atredis’ tenth anniversary. We started out by reaching out to the Beyster Institute, a group at UC San Diego’s Rady School of Management that advises companies on this transition, based on their connections to SunPower and the ESOPerative model.
Well. We didn’t make our initial target date, for a lot of reasons. First and foremost, one of our cofounders wanted to exit the company prior to the ESOP’s formation. That took a lot of legal wrangling up front before we could even start on the ESOP move.
Another speedbump for us was that since we’ve always been bootstrapped and self-funded, I typically have (and my fellow Atredians have generally shared) a deep and abiding distrust of what I tend to call “Wall Street Math,” and so we had a lot to learn.
When you’re self-funded, and aren’t leveraged up to your eyeballs in outside money, you don’t have the luxury of being “cashflow negative,” so you have to spend what you actually earn, and no more. As part of becoming an ESOP, though, you will have to work with a lot of quants and finance wonks, and in my experience they really don’t think it’s funny when you tell them that you share Charlie Munger’s view of EBITDA. When I was asked about our “5 year forecast,” I replied that we were only as good as our last successful project, and that we never forecast more than a few months out (this is still true as far as it goes, and a big part of our culture, mind you, but it really bit me in the hindquarters with the finance wonks).
Ultimately, you have to play along, because part of setting a value on the shares that you are issuing to your worker-owners is well, a valuation of the company, something we quite intentionally had never done before, since we had zero interest in being acquired by M&A, VC, or Private Equity.
I guess my point is just that we learned a lot, and grew a lot, during this process, and we’re all excited about this new world for Atredis! Beyster was a huge help in getting through it, and I can’t recommend them enough. Ultimately it took us almost eighteen months, although part of that was frontloading a cofounders’ exit.
I never would have survived this process without my fellow leaders at Atredis. Kiston, Joshua, and Nathan, thank you all so much for going on this journey with me. Love and appreciate y’all very much. Justin and Tom, thank you for helping steer the ship while the entire C-suite was neck deep in administrivia and very ugly spreadsheet math.
I’m incredibly proud of all of us for pulling this off, and I’m excited about the next ten years. Particularly proud to be a worker-owner alongside my fellow Atredians. And CEO, too, I suppose, but that’s up to the shareholders, not me. And personally, I wouldn’t have it any other way.
Onward and upward.
— Shawn M
CEO, Atredis Partners / Chairman, Atredis Heavy Industries