Here is the transcript of the conversation.

Emily Bergstrom: Danny, thank you again for joining us virtually. You’ll be off having fun in Europe when the webinar is going on. So thank you so much for taking time ahead of that. And you and I spoke once a little while ago. And I learned a bit about Lumber Traders, but I would love to just start at the beginning for folks listening. If you could tell us the story of, like, what was the employee ownership journey for Lumber Traders?

Danny Steiger: Yeah, absolutely. Well, thank you for having me. First off, so Lumber Traders has been an ESOP since 2004. Prior to that, we had a couple of owners, Arnold and Debbie Shelton, who had run the company for about 20 years, and they were looking to retire. So they were looking at different options for their exit strategy. And, of course, there were companies who were interested in acquiring.

Danny: But we’ve got two businesses in the same town, so it’s a little bit of a smaller area, and most of them are interested in closing one of them. Arnold and Debbie really wanted to protect the employees’ jobs and also the businesses. One has been around since 1906 and the other since 1960. So they were really established in the community.

Danny: So as they were trying to figure out what their plans are, they discovered the ESOP model and they started looking at that and they said, “Well, this is really kind of a win-win.” They can get paid for, you know, building up the company and all the work they did. And they can pass that legacy on to the employees.

Danny: So ultimately, that is what they did. So in 2004, it switched over. They did sign on the bank loan as well. Sometimes that’s a little tricky to get the financing necessary for that. But they were willing to be involved so that they could make it happen for the employees. So that’s kind of the journey that we went on to get to where we are today. And that’s now 20 years. We’re celebrating 20 years as an ESOP.

Emily: That’s so exciting. And I think if I remember it, you weren’t there from the beginning. Right? How did you start at the company and what do you do now?

Danny: Yeah. So, I started at the company seven, I think, eight years ago now. Initially I had moved to the area and I had a pretty good history in the building materials industry. I just wanted to change my career. I came on as retail sales manager just to get my foot in the door. And very quickly, within about six months, I moved into the store manager position.

Danny: And from there, I thought, Okay, this is probably where I’m going to be for a while. And then our CEO kind of unexpectedly announced that he was going to be leaving. And, we have been doing a lot of work culturally and education around the ESOP. I know we’ll talk about that as well. And we really wanted to make sure that we kept on that track.

Danny: So, the Board interviewed me for the position. I started out as interim for six months, and then the full CEO after that, and that was just about five years ago now. So, very unexpected. And also, I should add, I had no idea when this was when I started, they asked me and I said, “I’ve never heard of that.” Right. So it was a learning journey for me as well, but it was very exciting to see the benefits and see the impact that that had as well.

Emily: Now we could talk about the education piece, because you and I talked about that before, and I would love to just kind of describe that to everybody that it seemed like if I remember what you said is that people didn’t really get it. They thought maybe it was like a scam or like, you know, there was like some suspicion, if anything, you know, like it wasn’t on people’s minds.

Emily: I’m curious to hear about the like before and after from before you were really focusing on employee education. And then now that you have like, how do people understand what does it mean to be an ESOP, you know, participant? Like what does that mean to people there? How do you guys, you know, make that sink into folks who are working at Lumber Traders?

Danny: People ask, “You know, how does it work?” And when it’s working? Well, it’s great. Right? You’ve got employees who are invested in the performance of the business because it helps them for their retirement. When you’re not doing it well or doing it right or educating people, it’s a massive expense, you know, and it’s difficult.

Danny: And like you alluded to people at the time when I came on, a lot of people, and I should back up, people fill in the gaps, right? If they don’t understand something, they’re going to answer it in their heads. And that’s a very human thing. And we need to know that people are going to be that way. So people thought it was some kind of Pyramid Scheme or Ponzi scheme for the old owners. So it’s like, well, that people have a negative view of this thing.

Danny: So we really had to start with education and sharing with the employees what it looks like, how it works, why we went this model, why the former owners went this direction and get them to understand that. And another thing we did was the statements that we got from our plan administrator were very vague.

Danny: But we redid our statements and to be able to show what this benefit has done. And furthermore, another big part of the education is when people enter the plan, there’s a time period to enter the plan and then an investing period.

Danny: And to be able to show them, well, you don’t have anything on paper today. This is where you’re going. This is the path. And that really flipped it from a negative, frankly, yeah, to be something very positive. And that rolls into the retention and recruitment, you know, and keeping those people who are really involved and really care about the business working here because it’s a challenging labor market.And attracting new people. I know we’ll talk a little bit. Maybe I’m jumping the shark.

Emily: No. Go for it. Yeah. Go right into that.

Danny: So one big thing that we launched now, this is going on the second full year. We have a new department called glassworks. And it is an installed glass department. By the way, I probably should mention we have two lumber yard home centers in Port Angeles, Washington. So kind of like a miniature Home Depot, if you will.

Danny: And, we didn’t have installed glass, and, I had reached out to a former coworker of mine who I knew who wasn’t terribly happy at the company he was working at, installing glass. And, there was only one other local competitor to them who was closing down. So I reached out and just said, “Hey, how’s it going? Are things a bit crazy?” He said, “You have no idea.” He said, “Hey, I’d love to chat.” And so we got together and we chatted and he said that he was thinking about starting his own company. And I said, “Oh, man, it’s tough to start a new business. What if you came under our umbrella? You know the business, right? I’m not an expert on the glass business. Bring your team. You can run it. You can be a part of our company and have our backing. And we have this awesome thing called an ESOP.” So I was able to show him and give it to him to pass on to his three other guys what this looked like over the next ten years and what that benefit would be.

Danny: And that was absolutely key for getting them to come on board with us. And, this last year, we did just shy of $2 million of revenue in that department, with fantastic margins as well. And the employees are so happy and they see where this is going and the impact that they’re having and what that looks like for their future.

Danny: So, huge win for us. And honestly, without the ESOP, it probably wouldn’t have happened.

Emily: You know, I was curious when you are recruiting people, what’s your like two sentence elevator pitch for the ESOP? Like, how do you describe that so that people get it right away and that they understand and it’s not like an obscure thing for them?

Danny: That’s a challenge in two senses. Yeah. I think it really comes down to we’re an employee-owned company and an ESOP is essentially a retirement fund. But unlike the 401(k)—and most people are familiar with that—you don’t have to put in a dime. You just get the shares for working at the company.

Danny: But the really cool thing is, you know, if you own Microsoft shares, you hope Microsoft goes up, right? You have no power, right? You can buy a Windows computer, but that’s not really going to make a difference on that share price. So the cool thing with an ESOP is you’re effecting that share value, which is ultimately your own retirement and everybody else of the company. So everybody else is working for each other and trying to make that better as well. So, if you want to be able to have a controlling interest in your financial future, this is an incredible benefit.

Emily: That’s a great pitch. I love it. I think that’s a really good summary. And you know, do you share with people or would you be open to sharing with this audience, what does it mean to the average person you hire to participate in the ESOP? And what does it mean for an average like a 15-year employee or someone who’s more established at the company? Like what does that difference mean to them?

Danny: So we just had a company meeting where we went over the new share value with everybody. And I want to say that the average employee…so there are some very long-term employees and, you know, higher wage earners get more shares as well because you get it based on your percentage of payroll. But the average employee, the increase in share value and additional shares that they were given just in this last year was about $13,000.

Danny: That’s a pretty big chunk of change. And obviously that includes people who just entered the plan as well. I’ve been here a while. Yeah. So the longer you’re in it, the more that increase in share value affects your portfolio or your total balance. You know, we had several employees who made more on the increase in their share value and shares they received than they did in compensation for the year. Yeah. So it just keeps growing.

Emily: Yeah, especially considering, you know, I don’t know what your workforce is like exactly. But a lot of folks who are working in your industry don’t even have retirement savings, right? You know, let alone, a retirement increase that would be more than their annual wage. It’s huge.

Danny: And I do want to just mention, too, because we need to be a little careful with ESOPs because it is a massive benefit. And sometimes, you know, our board is wonderful. So I’m not calling them out in a negative way at all. But sometimes we lean too heavily on it and say, “Well, we have the ESOP.”

Danny: Or we just need to be competitive. But we have these up and it’s like, yes. And the ESOP doesn’t put money on, you know, put food on the table. It doesn’t pay rent. Yeah. So it does have to be a balance between the long-term benefit for the employees, but still offering them compelling reasons to be there because it’s challenging times right now.

Emily: Yeah, yeah, yeah. Every dollar matters for so many people right now. I was kind of curious going back to the former owners; I think I remember you saying that you do see them relatively frequently. You have a relationship with them. What do you think that would be like if you could share, you know, what do you think it feels like to them to have chosen this path?

Emily: Do you think that, you know, you said that part of the meaning for them was like making sure that these facilities didn’t close, you know, that they didn’t want someone from the outside to come in or move that, you know, do you feel like they are getting value from choosing this way of selling, or do you think that it makes them feel proud?

Emily: I don’t want to put words in your mouth. What do you think that they feel about it?

Danny: No, I think it’s a huge legacy for them. And, you know, a point of pride. Not in a negative sense, but a good way that they’ve left their fingerprints. And I should also mention both of the former owners, husband and wife, are on our Board of Directors. Arnold is the chairman of our board, so they’re still involved in the company.

Danny: Additionally, you know, we went through the financial crisis, you know, ’08-09 period. We were in a rough place. And they actually came back and helped run the company, for free. They did not take any compensation just to help us kind of weather that. And unfortunately, there was some kind of poor management that resulted in that being necessary.

Danny: So it’s not always needed. From my standpoint, it was amazing. This was my first time as a CEO. But knowing that they’re still involved and they’re still on the Board and they’re still a resource for me to go to and ask questions or get feedback, and they do a really good job of not being overly hands-on, but they’re there and they just want the success of the business.

Danny: I’m fortunate I actually played volleyball with them, once or twice a week during the summertime as well. So they’re just fantastic people. It’s such an amazing legacy. It’s not just passing off the business to some corporate entity or something like that. You know, it’s continuing to make a difference in their community. And I think they’re very proud of that, and we’re very thankful for them for that as well.

Emily: Yeah. And could you share the numbers again? I think you told me when it can when the business converted to an ESOP, what was the employee count? And then what is it now like? How much has it grown in terms of employees since it changed over?

Danny: And I’m going off the top of my head here. I think there were around 45 employees when it converted, and we were doing something in the vicinity of $12 million a year annually. Now we have 65 employees, and we’re right around $21, $22 million in revenue. So it’s grown pretty dramatically since that time. You know, the share value.

Danny: Just quick math, it’s something around six times what it was when we started being an ESOP. So we’ve averaged 16% per year growth.

Emily: That’s amazing. And then just thinking back to your employees, if they were in the stock market for the last ten years or whatever, they wouldn’t have seen a 16% return. I mean, that that’s the kind of thing that you can only get with a private company that’s doing really well. The owners already don’t have any kind of financial relationship with it; the debt is paid off to them at this point. So they’re on the board because they want to be, not as debt holders. Right?

Danny: That’s correct. And we do pay per Board meeting for the year, but it really is a very small amount for a while. So it really is that they care and they want to be involved. They don’t have any financial stake in the business other than just wanting to see it succeed for the sake of the businesses.

Emily: Yeah, well, I’m sure it’s so thrilling for them because as a business owner, I can only imagine, you know, you’re handing over this baby and you don’t want to see it struggle or, you know, close or have something, you know, happen with it. You want to see it succeed. So it probably feels so good to them to come in and, you know, see that there’s more people, there’s more revenue, there’s new things happening that’s probably exciting.

Emily: Do you have advice? So, you know, you’re kind of in the model you’re probably not as familiar with, like a coop or the Employee Ownership Trust. You know, other things that Project Equity does. But just thinking of an employee ownership sale versus other types of exit opportunities, you know, do you have anything that you would want to offer to owners who are considering an employee ownership path?

Danny: You know, I think most owners, they care very much about the community that their businesses are in and the strength of small businesses and keeping things local and keeping those dollars rotating through our communities rather than just exiting is huge and massively impactful. Unfortunately, one of our competitors down the road just sold to an investment company. Well, like, okay, well, good.

Danny: The people get to keep their jobs. That’s good. And all those profit dollars are leaving the community. Unfortunately.

Emily: Right?

Danny: So the impact of it is huge. And while it may be a little more complicated to set up an ESOP, especially for a first time, realistically, you can get the same sale price. You should probably be able to get the same sales price. And there are some things you know, if owners are willing to help out with the financing or underwrite a loan or something like that, that does help because that’s a little sticky sometimes with the bank.

Danny: But it really can be that when, when the owner is getting what they’re due, you know, they worked hard, they built a business, a successful business. So they should get rewarded for that. And you can get that and pass that on to the employees, which is absolutely huge. And you know, we want to grow our business and we’re looking at potential acquisitions and things like that too.

Danny: And I think that’s such a strong story to where employees can right away jump in and be getting those kinds of huge benefits. And again, the owner still gets paid out. It’s not a win-lose. It’s a win-win scenario.

Emily: Right? Right. Well, is there anything else that we haven’t covered that you would want to share or any other kind of stories that you think might be helpful for people listening?

Danny: Oh, boy. You know, one thing that you mentioned that people that have invested in the stock market, the key there too, is that they would have to invest in that. And that’s the beauty of the ESOP. There’s not any employee requirement to put in their own money. This is just being put in for them. And it’s such a huge benefit.

Danny: And again, I would just emphasize it does take work. It does take training and education for employees to make it really be that win-win scenario. And try to remind them throughout the year, you know, once a year is not sufficient to take that step. But like so many things in life, the best things are things that take effort.

Danny: Right. It’s worth the investment in that time and that energy. And it is such a beautiful legacy for the community, for the employees. I couldn’t be happier or more proud that I am working for an ESOP. It’s been incredibly rewarding for me as well.

Emily: Oh my gosh. Well, that is a lovely note to end on. Danny, thank you so much for sharing your story and love Lumber Traders’ story. It’s really cool. I think it can be inspiring to other people to just see another business and what their journey has been, especially one, you know, that’s been in the last 20 years. It’s really cool.

Danny: You know, and and by the way, I’m perfectly willing if you want to share my contact information. I could talk about ESOPS all day, every day. It’s a passion of mine. If anyone has questions, you’re thinking about it or if somebody has one and you want to improve, you know, we can all learn from each other.