Don’t Give It Away

- Hey everybody, Drew McLellan here from Agency Management Institute. This week, I am coming to you from Nashville, Tennessee. I was talking to an agency owner this week who is considering putting "golden handcuffs" on one of her key employees by giving her some shares of stock in the agency. And I strongly, underline strongly, encouraged her to rethink that strategy. Here's the deal: When you offer someone something for free, when you offer them a piece of your company for free, everyone, mostly everyone is going to say yes. Even if you explain to them the trials and tribulations of agency ownership, who's not going to take a beautifully wrapped box that has all the promise in the world of revenue and dividends and more shares, who's not going to take that for free? That is not what you want in a business partner. There is a distinct difference between a shareholder and a business partner. And the only reason you should give away part of your company, and when I say giveaway, I mean sell, the only reason why you should give up part of your company is because you are taking on a partner who is going to behave like an owner in the business. And the only way I know to make sure that that happens is to make them buy those first shares of stock. I have talked to dozens and dozens of agency owners who gave away a share or five shares of stock to a key employee to keep them engaged in the business, maybe to encourage them to someday buy the rest of the business. They had lots of reasons but none of those reasons came true. One exception, I know of one exception where an agency owner gave shares of stock to a key employee where that employee has A) now bought more shares, and B) from the day she got those shares, she acted like an owner, she was an owner. But you know what? She was acting like an owner before she had the shares of stock. So what happens is you give them those shares of stock and they only have 1%, 5%. Their vote doesn't really matter. They don't show up the way you want them to. They still show up how they behaved before they got the shares. And now if they want to leave, and by the way, 1% or 5% of a company and the tiny little bit of dividend that they get from that, is not enough to get them to stay if they don't want to stay. So let's say now all of a sudden they get headhunted and they have an opportunity to go somewhere else, guess what? You now have to buy back the shares that you gave them. I have had countless conversations with agency owners who are angry and sad and disappointed when they get to that point. Either they have a shareholder in their company who still behaves like an employee, not an owner, and that person has no intention of going anywhere so now they're going to have to just keep giving up part of the dividends and part of the control and they have to show them their books and all of that sort of stuff, or maybe worse, that shareholder decides they want to leave the company and now the agency owner actually has to write them a check for the gift that they gave them. So if you are considering, if you want to put golden handcuffs on an employee, there are a lot better ways to do that, and I'm happy to have that conversation with you. But giving away part of your company is not a smart plan. If you've got a key employee who you think could be the future of your company, who might be the buyer of your agency someday, or you really want as a business partner, then make them write you a check. It's okay if you deeply discount the first purchase. It's okay if you sell it for a fraction of what it's worth, but make them write a check. And the check has to be big enough, $5,000, $10,000, $15,000, that they have to A) talk to their partner about it if they have a life partner, B) that they have to think about writing that check. It shouldn't be a dollar, it shouldn't be a hundred dollars, it should hurt a little bit to write that check, then you know you've got a partner who actually wants to be a partner in the business. So be very careful about giving away your company. I'm not a fan of that strategy. Happy to talk to you about other ways to lock in great employees, but giving away what you have worked so hard to build is not a good strategy. All right? I'll talk to you next week.