Latest / Alternative Exit / Alternative Exit #69 | The Finish Line She Didn't Want to Cross | Shannon Litton, 3LS

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Alternative Exit #69 | The Finish Line She Didn't Want to Cross | Shannon Litton, 3LS · Alternative Exit

• Andy Farquharson: Hello everyone, Andy Farquison here, and welcome back to the alternative exit. So our next guest is one of those conversations we love to have. It's with an owner, right? An owner of a business who grew her agency, which is five by five, into a five-time Inc. 5000 agency. And when it came time to exit, she didn't sell the private equity. She didn't retire like a lot of people do. She actually sold to an employee-owned company, and her whole team then became owners. So, like, yeah, a really sort of exciting part of that journey. And now she's sitting on the other side of that table. Running professional services for 3LS, which is a familiar name for many of the listeners to the podcast, where she sort of like they buy companies into employee ownership. And there she serves, she's also sorry, the president of the Tennessee Center for Employment. employee ownership. Shannon Litton. Welcome to the alternative exit. Shannon Litton: Thanks, Andy. I'm so glad to be here. What a wow, what an introduction. Too many hats, maybe. Sorry, that's my fault. I can't I Andy Farquharson: There's a lot to get through. You've done too much. You've had too much success when it comes to this transition. Shannon Litton: Well, let's call it success. That's good, yes. Andy Farquharson: Yeah. hard hard earned lessons. but Shannon, I'd I'd love to start by I mean just just focusing a little bit more on your agency. like a five by five mean what what type of agency what was it? What type of clients were you serving and how were you structured? Shannon Litton: Yeah. Well, it was actually my second run at building an agency. So I had had built a first one and I was a minority owner. left that and wasn't sure that I would do it again because building a business is really hard. I Andy Farquharson: Yeah. Shannon Litton: know you know that. And and when I left, one of my business partners came to me and he said, Hey, I heard heard you left your other agency. What are you gonna do next? And I said, I don't know. Hopefully take a little break. And Josh said to me, I, you know, I know you'll start something else, and I want to come with you. And and Josh is one of those guys that I had tried to hire many times over the years, and he'd never come work for me. So Andy Farquharson: Okay. Shannon Litton: the thought of starting something with somebody that I really trusted and had always wanted to work with was just too good to resist and jumped right back in to start another agency, which was five by five. we we had this. Theory that we all came from different agency backgrounds and that we could maybe skip some of the mistakes we had made in earlier years. And I'll tell you for the most part, that was true. I mean, we grew really quickly. We were on the Inc. 5000 list. five out of the first seven years that we were even eligible to be on it. So we just Andy Farquharson: Yeah. Shannon Litton: kind of came out of the gate. Also with a lot of relationships, we're all very relational people. And so we came in with a lot of relationships and goodwill and people rooting for us. And and so we also though we did something that is the opposite of what you should do in building an agency. And Andy Farquharson: Yeah. Shannon Litton: we came in with our executive team. Usually an executive starts and then hires, you know, a bunch of initially hires people that don't make as much as them. That's the way you get an agency off the ground. We came in with a whole lot of big salaries and a goal that everybody would get paid by the end of the first year. and I actually think in hindsight, it was really great pressure for us because we had to go fast out of the gate to make that happen. and the last person got a paycheck the last week of that first year, got their first paycheck. And Andy Farquharson: Kai, that's awesome. Shannon Litton: so we we hit our first goal. So, anyways, we we built that over 12 years. Sure. Andy Farquharson: So sorry, Shannon, j just one thing I want to sort of just clarify on that piece there. I mean, you saw you talked about hiring so b hiring the more experienced executives straight in. Does that mean a lot of those more experienced executives were getting back onto the tools and doing the work with customers? Like Yeah. Yeah. Shannon Litton: a hundred percent. And we weren't great at it either, to be honest, right? I mean, it's it's a skill you lose when you don't do it. So, but I also think that's part of the fun of startup. You know, we would we sat around a a table together every day at a at a a shared suite, right? Where we just come in and find a table we could all sit at and we did all the work together. And I I think it was it was part of what made it fun is getting our hands back in all that work. But it also motivated us to be able to hire people to do those things again, to do the client management and the the meeting setup and all of the things, right? So and we just we built a team of picking, we again we're relational, so picking the best people that we'd worked with and skipping some of the mistakes that we'd made in our earlier agencies and and bypassing a few. We made plenty of our own too, but we bypassed a few that we'd already learned. And so it was it was really, really great. Over the course of 10 years, we built a team that we just loved. A team that, you know, we would vacation together and our spouses knew each other. And Andy Farquharson: Wow. Shannon Litton: I've always struggled with people say, should you call your team? We're like family or not. And I can argue both sides of that, but you know, in a lot of ways we were. And Just a committed team, Andy, that just would do anything for the company, was all in on building a successful company. And I started having these questions. It was one of the times we were on the Inc. 5000 list. Every time that happens, all of the buyers come out of the woodwork, right? So we're gonna take these 500 companies and they're our targets for acquisition. So I mean constant. Andy Farquharson: Bring down the lawn, yeah. Shannon Litton: And one of the years, because we we also knew that we wanted to build something to sell. And so one of the the later years, I said to the my business partner, I said, I'll just take any any inquiry that seems like it could be legitimate, I'll just take the calls. And if nothing else, I'll learn. And so started taking those calls. a good number of them were from private equity. Andy Farquharson: Is that Shannon Litton: some were Just buyers that really wanted a, we had a a headquarters in Nashville. It was growing at the time. Nashville was exploding. People that really didn't care about our business so much as they just wanted a footprint in Nashville, right? So Andy Farquharson: Okay. Shannon Litton: I I was learning a lot through those. And the more I learned about the potential for our endings, the the the more I didn't want it to end. Because I looked around at all those people that were so committed and that it helped build it. And I just thought. The worst day of my career is going to be the day after I sell this company. And I have to walk in and look these people in the eyes and say, We did it, everybody. I sold the company. Goodbye. Andy Farquharson: Yeah. Shannon Litton: Good luck, everybody. Right. And and I I dreaded it. And so it, I, I went through this tension, India, feeling like I am every day getting up, pushing, fighting, running towards this finish line that I don't even want to cross. And along the way. We I had lunch with a brand new client and in the middle of the conversation he said our employees own the company. And I I just can't tell you in that moment, right, especially with all this tension that I have of of of not taking care of people in a transaction. I in that moment, I'm sure, I mean, I'm we've all heard the words employee ownership. We've all heard employee owned, but this was a consulting company kind of similar to ours and In that moment, I just said, What does that mean? And the rest of the lunch was not me getting to know him him, it was me getting to know what employee ownership meant. and he just answered all my questions about it and how it works for them and what it means to them and the culture that it creates for them. So we went from there on a on a at least a couple year journey of devouring every book I could find and every podcast I could listen to. And I would just, I would Google, you know, employee owned marketing agencies and I would reach out to the CEO and say, I'm interested in learning about this. Can I talk to you? And and every one of those CEOs responded right back and said, My favorite topic, when can we talk? Yeah. Very generous. Andy Farquharson: Absolutely. Yeah. Very generous community in that sense. That's awesome. Shannon Litton: Yeah. Andy Farquharson: And so Shannon, were you the only are you were you the only owner at the moment of the LLC? Shannon Litton: I was I was a majority owner and we had I had two partners that had ownership also. so they they came along on that path. The other thing, Andy, is we were we were three owners of three different generations. So one of my partners was was a boomer. So he was he was looking at retirement in a different way than I was. I'm Gen X and then Josh, the other partner, he's the oldest millennial, but He claimed he says he claims it when it's convenient, which makes him a millennial. So we Andy Farquharson: Yeah. Shannon Litton: kind of have these three different horizons too. And so we we didn't spend a lot of time talking about that, but we always knew that was there, right? And that we we we may want different endings. And so so really as we started looking at all of the the flexibility, because as as complicated as employee ownership gets a wrap to be, right? There's also an Incredible amount of flexibility in it. And as we started looking at all the options and flexibility, we knew there was something there. And so we, we all for a few years really just committed to learning about it. And I'll never forget the call. It was with a marketing agent, a marketing agency owner. They were 100% Andy Farquharson: Mm-hmm. Shannon Litton: employee-owned. And my my boomer partner, Mike, great friend of mine, he hates it when I say this, but it's so true. I always called him our resident skeptic. So I'm I'm like, Andy Farquharson: Yeah. Shannon Litton: I am all positive all the time. My glass is half full, right? And Mike is the guy that everybody needs who would always say, but what about and have we thought about? And so he was the last one to get on board the the employee ownership train. And I remember we had a call with a with this owner, and he just was so honest with us too, Andy, about you know, it's not perfect because nothing's perfect, and here's the challenges for us, but You know, here's what we would do. It here's here's all the things that go right. And and at the end, we just said, Would you do if you had this to do all over again? He had sold his company to the to the Aesop, would you do it again? And he just looked at us, you know, through video and said, a thousand percent yes. And we Andy Farquharson: Wow. Yeah. Shannon Litton: got off the phone and that's the first time Mike looked at me and Josh, and he said, All right, does this move up our timeline? Like he was all in, ready to go. Let's do this now. Andy Farquharson: Okay. Shannon Litton: And yeah, and so we we got to work figuring out what that meant to do it. Andy Farquharson: Well what was what were some of Mike's reservations about this as a mo as a potential exit? Shannon Litton: Yeah. Yeah. I think there's always I'm always surprised at the amount of misinformation about employee ownership. I mean it's frankly it's Andy Farquharson: Yeah. Shannon Litton: it's very frustrating to me. There is an expert in the in the agency space who we we actually had had a evaluation done by him when we first started thinking about maybe we're getting close enough to sell. He came in and did evaluation. And at the end of that process, we told him we were considering employee ownership. And he said to us on the phone, I am not a fan. I think it's unethical. Right. I know. Your face is. Yes, unethical. And I didn't dig into it on that call. So he wrote a blog post probably 60 days after that. I feel like he was writing it to us. Of you Andy Farquharson: Yeah. Shannon Litton: know, the the eight ways that employee ownership fails people. And I I'll just tell you seven of the eight were factually incorrect. Things like because all your eggs are in one basket in an ESOP and you don't have the opportunity to participate in a 401k. Guess what? Most companies, ours included, have a 401k as well. It's in addition to so. Andy Farquharson: Yeah, totally. Shannon Litton: So as I I read that, I just thought, and I and I actually combat that in the agency space a lot because he's a he's a powerful voice just to say to people, do your own research. Do your own research. Because and and Mike had seen some of those things and he had read some of those things. And I think it's a combination of misinformation and also just lack of information, right? And in the business space, in lack of information, there are a lot of us that feel like we have to know everything. So if we don't know anything, we're gonna. We're gonna be we're gonna be skeptics and critics and I'm glad we dug in and did our own research. Andy Farquharson: Yeah, absolutely. Especially it's horrible when you get those advisors, isn't it? Who just Shannon Litton: Right. Andy Farquharson: spouting off information they don't know. s Shannon Litton: Right. Yeah. Andy Farquharson: so the next step of your journey, like you y you figured out, hey, look, this is the path we want to pursue. 'Cause I mean, just could you give us a sense of like what's the size of five by five at this stage in terms of people or revenue? Shannon Litton: Yeah, we were s we were small for an ASOP at the time. I mean, not so we were on the smaller size. We were about 55 people. And it's Andy Farquharson: Okay. Shannon Litton: it's a size you can do it, but it's not, you know, it's it's not a huge Aesop. and we we decided we did a a couple of different feasibility studies, just just looking at different things, looking at different partners. And we had decided to do a hundred percent Aesop out of the gate. And When we got down to the end, we we actually only did 30% to start with. And it was a combination of of factors, not the least of which we were gonna do some of the the the financing of it through a bank loan. And we just really were uncomfortable with a lot of debt. We built businesses without debt and we just got nervous at the end and we thought, let's let's Andy Farquharson: Totally. Shannon Litton: do that, we'll do 30%, we'll be able to. you know, bring the team into that. They'll they can understand it with the intention of doing the other seventy. So yeah, we had some shifts Andy Farquharson: You didn't. Shannon Litton: along the way of of our plan, but we we knew employee ownership was the plan, but how we got there we were flexible on. Andy Farquharson: Okay. Did you I mean, did you entertain like doing the other seventy percent on like a seller note or vendor note to Shannon Litton: Yeah, yeah. And and that's what we were going to do too. Andy Farquharson: Yeah. Shannon Litton: but we were but it was honestly it was just the 30% note and and that was so scary to us when we looked at those numbers. And you know, agency professional services can have a lot of ups and downs swings. You Andy Farquharson: Yeah. Shannon Litton: know, it's not a we have some other businesses in our organization now that are just real stable revenue and I I remember saying when we first came into this group of companies, we'll get there, but saying, I am so jealous. And also I think that would have taken all the challenge of it out for me. You know, I love that we can have these huge growth years, right? Uh-huh, right. That's right. Yeah. Yeah. Andy Farquharson: Damn repeatable revenue, it's so boring, isn't it? Shannon Litton: So so yeah, I I think we we we just got scared to to bite that off at one time. And I think we did the right thing. Honestly, it set us up in ways we didn't know to be able to take our next step. Andy Farquharson: Yeah, very cool. yeah, a like a a lot going on. I can a lot of people really do struggle with that debt. especially like when you start thinking, well, what happens when we don't make that debt? Like a and actually having to see those covenants, or breaking covenant sort of provisions, it's yeah, it's quite scary. Shannon Litton: Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. And Andy, I should say we could have done it. We were looking back, we were very conservative. We absolutely could have done it. I know the financials now, we would have been just fine. but there was something for us in taking that small step first that I think was right for us to do. but we would have been, we would have been just fine. Andy Farquharson: Yep. And so after you like how did your team how did the team, the other fifty, fifty three P or fifty two people respond to to having Shannon Litton: Yeah. Yeah. Yeah. Andy Farquharson: thirty percent of the company? Shannon Litton: Well, we we also did, we don't always listen to rules. We also did something that every advisor told us not to do, which was we brought our our leadership team of 12 of those 55 people we brought into the planning of it. So before we had done it. So about a year Andy Farquharson: Yep, nice. Shannon Litton: before we became employee-owned, we took our leadership team away on a retreat and To do planning for the year. And we told them our plan is this time next year to become employee owned. And we set out some targets. We knew what we wanted to hit, you know, revenue wise, EBITDA-wise that year. And we set that out to build a plan to that. And that team got so excited, Andy. and part of the reason this is interesting, part of the reason that they now say they were so excited is they knew we were getting offers to sell. They knew Andy Farquharson: Yeah. Shannon Litton: it was valuable. They knew someday there would be an exit. And because they didn't know what it was, you know, like we all do, they assumed it would be bad. And so when we said, hey, this is our plan, they were so excited, not only for the employee ownership piece, they didn't really understand that, but for the stability and understanding that that now we're looking at a long time that they could keep their jobs and do what they want to do and we could work together as a team. And so we told them when we came back from that retreat. that team was so motivated. We had to pull them in a few days later and say, Hey guys, you're gonna have to settle down a little bit because you're scaring people. We had Andy Farquharson: Cobra Jets. Shannon Litton: we had other team members going, What what happened at leadership retreat? What's going on? Why is everybody like everybody was so passionate? but that's boy, that was a great thing too. And we had a great year that year. Andy Farquharson: That's also so I I I guess there's a couple of things I'd like to unpack about that that sort of introduction to the team. I mean, you you you talked about how you you had some plans and some e b some goals. Like at the end of that, d did you have like a a a set sort of valuation or sort of, Hey, look, we're gonna be looking at a certain multiple of EBITDA by the end of the year. So when we make this transition, this will be yours. Is that how you're thinking about it? Okay. Shannon Litton: Yes, that's right. That's right. Yeah, yeah. And that that's actually what we were sharing with them was because we'd already done both of those feasibility studies by then. So Andy Farquharson: Yeah. Shannon Litton: rather than sharing the multiples that would affect us as the selling shareholders, we were sharing the targets that would get us to the valuation we wanted, right? So they were used to working against like we have to hit these certain numbers every year. So we said, hey, these are our numbers this year. And it was a bit of a stretch, but not. not outside of what we done other years. And if we can hit these goals, then we will be at a place that we are ready to to exit, Andy Farquharson: Nice. Shannon Litton: not as it exit physically, but you know, exit our ownership and sell to the employees. And so that got them involved. And you know, I want to be a part of this too. And it was it was exciting for everybody. And then we told the rest of the team after we had closed that 30% ESOP. We it was our it was our tenth anniversary as a company. We had told everybody that we were going on a an all-team retreat, which we had done every few years. We'd all take everybody away. We'd gone to, you know, we're in Tennessee, we'd gone to Dollywood for the weekend and things like that, Andy Farquharson: Yeah. Shannon Litton: right? but we told everybody we were we were going away, we had it on the calendar. A few weeks before that, we told everybody, surprised everybody in a trip in a team meeting that we were flying everybody to Disney World for three days. So everybody was excited. You know, this is our big anniversary trip. What they didn't know was that the week before we went to Disney World, we were closing on the Aesop. And the first night in Orlando, we told everybody we are here for our 10th anniversary, but we are also here to tell you that 30% of the company is now owned by the employees. And, you know, those moments, we actually have it on video. I'm so glad we recorded Andy Farquharson: Yeah. Shannon Litton: all of these moments and To go back to those, it is such a a sweet moment of excitement and also disbelief and also I have no idea what you're saying to me, but you flew me to Disney World, so you think it's a good thing, right? So right, that's right, yeah. Andy Farquharson: You've ear you've earned the right for me to listen. yeah. I mean Chad, it's it's 'cause I often hear that when peop when this is announced, like a lot of people are just filled with so much of that fear, uncertainty and Shannon Litton: Yeah, yeah. Andy Farquharson: doubt that they it's not this sort of moment of elation that they're hoping for. Like but Shannon Litton: Right, right, right. Andy Farquharson: it sounds like for you there was that. Shannon Litton: So I I really believe it is directly tied to the amount of trust that that team has with leadership. So if I tell you Andy Farquharson: Yeah, okay. Shannon Litton: something's good and we have a lot of trust, then you're excited. If I tell you something's good and you don't trust me, then you're skeptical. So I I think we had really intentionally built I love the book, The Five Assumptions of a Team by Pat Lincioni. And the the you know, the but the base of that is trust within a team. That's a that's a book we had gone through every single year. We would do an entire day on that book with that team. And so we really had worked hard for that. And that's not to say there are some industries, companies, the size of our company really helped with us being able to build trust. We had direct relationships. So that's not to say that those companies that don't have that experience out of the gate, there's anything wrong with the leadership. We just had the opportunity to have built that. at the same time. People still didn't know what it meant. So we were really careful, Andy. And we do five by five actually today does a lot of ASOP communications works and work and helps teams go through how do we announce this? How do we, you know, train people on what ESOP is and means. And we had that night very specifically put together a a short presentation on here's the first questions you're gonna have, and we want to answer them for you tonight. You know, do how much money am I gonna have to give you? None, right? when do I get to vote on all the decisions? You don't. It's not a democracy, right? And so just some of those things that we knew and we said, we're gonna answer these questions for you. If you're some people are investigators, we knew some people were gonna go back to their hotel rooms and start Googling everything they could. And I did not want them to find the misinformation. So we also sent an email that night and said, Hey, we told him if you go back and you want to study more, here's five different things I'd love for you to read. Here's a couple videos on. on companies, we gave them the information about that we knew was true Andy Farquharson: Yeah. Shannon Litton: information. And then we said, the next day we're gonna go to Disney, we're gonna spend the day in the park and we're just gonna celebrate. So we're gonna have fun, we're gonna watch the fireworks together, we're gonna eat ice cream. Then the last day we were in Orlando, we had very intentionally put together a full day of of training, of information. So I'm a big believer in putting together a cadence of inspiration and information. So The first night was a dinner. It was information and inspiration. The second day, inspiration. This is the best day. Everybody was like, Well, this is so great. We're so happy. We're at Disney World. And then the last day was information. It is a day of you know, we're it was a marketing team. We did, you know, we did a, we had written a stage play, Aesop the stage play, right? We had people act out like I'm the trustee. so just how do we have fun and learn together? And then and then you really, we had to commit to it is a it becomes a a a critical part of your culture and your business structure to constantly teach people what employee ownership is, what the value is, what it can mean, tell the stories. It it it just has to be a constant part of what you do going forward. Andy Farquharson: like there's so much I wanna be able to unpack there, I wanna if like if we go like what was the most difficult part of that communication story in terms of educating people as to what it means? Like was it the financial literacy, was it just Shannon Litton: Yeah. Yeah. Andy Farquharson: sort of sort of helping them understand like their their point of the governance, engagement with the trustees? Yeah. Shannon Litton: Yes. Yeah, I think I think probably I will say this. One of the things we had done too is a the year before this, the leadership team knew, we had very intentionally been setting that team up to become employee owners in a couple of ways. One, we we brought in some clients that were employee owned. So just our little trick of being able to say, like, hey, go learn about employee ownership because we're gonna serve these clients. So that had helped us. We also had started an entire process of financial literacy. we, you know, we just Andy Farquharson: Ne mass. Shannon Litton: called it how the business makes money for an entire year ahead of time so that the team would understand that going in. You know, there it's one thing when you're an employee owner and you think, you know, I I really I really get that I can impact the success of this company. But it's another thing to know what that means. What can I do? I think there are a lot of companies where we get these people bought in and then like, what do I do? Do I spend less on the pencils that I buy, right? Andy Farquharson: Yeah. Shannon Litton: So, like really to understand the mechanisms of how individual businesses make money is important. We had done that for the year before. I think the hardest thing there a couple of things come to mind. One is spouses or partners that don't sit in those meetings. And you've got somebody that goes home, and maybe I go home to the person who's the financial planner for our family, and I'm like, now we're gonna have, you know. An ESOP value and they're like, What's that? Is that real money? How do you get that? You know. so I I think there are times to bring partners in. I was talking to another employee-owned company leader Andy Farquharson: Mm. Shannon Litton: yesterday about they're doing an owner's conference and and I was encouraging her to invite the spouses or partners in, right? Because if they don't buy into it too, it it's really hard for that team member. there were a few situations like that, I think. And then I think to see, I think there are some time. This misbelief or this hope that once we become employee, and even though we knew it wasn't true, we still had this feeling of once we become employee-owned, why would anybody ever leave? Right? Such a great work, great place to work. And now you've got ownership, and then you announce an ASOP, and three weeks later somebody turns in their resignation. And it can be really defeating. And so I think. Andy Farquharson: Yeah, absolutely. Shannon Litton: It was more getting over some of that for us and realizing we knew this was the case, but also this is I love the the statement that you know an an Aesop is a great get rich slow scheme. And we've said that to our team a few times, right? Like don't get excited about your first statement because Andy Farquharson: Yeah. Shannon Litton: we really downplayed a lot of that to the point where their first statement, they were actually surprised that you know, it was more than a Starbucks drink and they were surprised. So we downplayed some of that to to help with that. But I still think it can be it can be discouraging when you spent years putting this together and then a few weeks later somebody's like, yeah, I don't really care about it. It can be hard. It did. yeah. Andy Farquharson: And and so that of that happened. Like you did have Shannon Litton: Yeah. And it's still, it's still, it's it's so it's funny. We had a few conversations. we brought a few other leaders in right before we were announcing it, people that we wanted to know. And I'll read them. I'll never forget. I was sitting at breakfast. And one of the leaders looked at me and he just kept wanting to know, but what if you're not here a long time? Does it help you? And I answered all the questions. And this is not a person we thought was at risk of leaving. And Andy Farquharson: Yeah. Shannon Litton: six months later he was gone. And I and I think back to some of the questions, the perspectives of people. I'm like, you told me you were leaving, right? You sat there and all Andy Farquharson: You gotta Yeah, yeah, exactly. Shannon Litton: you wanted to know was like, what if I'm only here a short time? So yeah, it could, but it can be, it can be hard. I I think I've as a leader, I think we have to always come back to we are responsible to do the right thing on behalf of our team. And then what they do with that is out of our control. You know, we we as leaders, we get that all the time. It's not just an employee ownership. We take care of people and then we, you know, do amazing things, you know, really support them through hard times, and then they go take a job because it's two dollars more an hour, right? Somewhere else. And it's it's very frustrating as leaders. And I've just had to come to this place instead of just feeling like I get hit in the punched in the gut all the time of just. Realizing I'm responsible for my part of it and then what they do with it is theirs. Yeah. Yep. Andy Farquharson: You can only do what you can control. So so after you did that announcement, while you were still sort of at the just like it was just that 30% eSop ownership, I mean, what were the biggest changes that you saw that this sort of greater visit financial visibility, greater understanding of ownership, how did that impact Shannon Litton: Yeah. Yes. Andy Farquharson: the day-to-day of the business? Did you see Shannon Litton: Yeah. Andy Farquharson: any behavioral change? Shannon Litton: Yes, I we did. We we also had a team that really, you know, we talk about, you know, think like an owner. Our team really had done a great job of that. It's why employee ownership was the perfect thing for that team. Andy Farquharson: Yeah. Shannon Litton: but we saw that even deepen. We really did. and we saw some members of our team really step up and want to understand employee ownership in a new way. One of our team members who runs our our ESOP practice now, working with other employee owned companies, he just got really excited to learn about it and to you know, and to be able to to have to know more to have an impact. And so that was really exciting. You know, when you fall in love with something like that, like I said, everybody, everybody's not gonna love it the same way you do. Everybody's not gonna understand it. I've spent three years now reading all the books. But for a few people for the lights to turn on is really all that you need because he's such a leader now in how the entire agency looks at Aesop. they they look to him as a as a leader, right? So for us it's different because I I'm the selling shareholder and and you know it was my decision. And then when you get other people on board that it was not their decision and they start saying, hey guys, I think this could be really good for us, that's really the validation that a lot of people need. Andy Farquharson: Yeah, awesome. I love that. The first getting the problem with it. Yep. Shannon Litton: It's also Andy, why we brought our team in. It was, I think one of the best things we did is that that team of leaders that our people looked to had an entire year to learn about employee ownership. And so by the time we got to the point of announcing it to the rest of the team, they could look to their leaders and say, I don't really understand this and get some answers. When you announce it to everybody the first day and they go to their leaders and their leader's like, I don't really know either. I hope it's good. Andy Farquharson: Yeah, Shannon Litton: I think that was yeah. Andy Farquharson: I was asking that one too. Shannon Litton: I think that was really helpful in this. Andy Farquharson: Okay, awesome. So let's let's talk a little bit about the next stage of the journey. Shannon Litton: Yeah. Andy Farquharson: Like when you went from that sort of 30% employee owned to 100% employee owned. Shannon Litton: Yeah. Yeah. We one of the clients that we were working with that was an employee owned company at the time, which is how our team was learning about employee ownership, was 3LS. And Eric Strickland is the CEO. I think he's has he been a guest? Yeah, I thought so. Okay, yeah. Yeah. Andy Farquharson: He's been on the pod. I'll put a link to his episode in the show notes, yeah. Shannon Litton: So Eric was actually one of my mentors through this. So at the time he was the president of the Tennessee Center for Employee Ownership. And I had Andy Farquharson: Okay. Shannon Litton: reached out to him through that. He came in and just really encouraged us through it, you know, not getting nothing out of it for himself other than I love employee ownership and supported us through it. I was meeting with him after we had done the transaction a while later. I had actually, Andy, I had started to work, I was, I was semi-retiring. And so I was working less and less in the business, had an amazing team. Josh was the president. And it was my thinking that after this that I I would retire, I Andy Farquharson: Yeah. Shannon Litton: would be done. And so I was meeting with him and he said, you know, how's how's retirement going? And I said, Do you want me to be honest? He's like, Of course. And I said, I am bored to death. And and so we just had a a a really good conversation about where 3LS was, what they were looking to do. And he said, I have an idea. What if we bought five by five, you'll be a hundred percent employee owned overnight, and then come in and help me build an entire professional services group of companies. And boy, that was just the curveball in my career that Andy Farquharson: Yeah. Shannon Litton: I was not expecting, but that has been the most amazing thing to happen. Andy Farquharson: That sounds like, yeah, a a a really phenomenal meeting. Shannon Litton: Yeah, yeah, yeah, it was. So we actually we like to to brag that we hold the record for the fastest business acquisition sale in the history of sales. So we had that conversation well with brought my business partners in. We had a conversation on about December eighth and closed the transaction on December thirty-first. Andy Farquharson: well. Shannon Litton: Not much of a holiday season for us that year, but we were all determined to just get it done and drive the attorneys crazy and we did it. Andy Farquharson: Well congrats. That's it that that's remarkable spade. Shannon Litton: Yeah, thank you. Thank you. Andy Farquharson: And what year was that? Shannon Litton: Twenty four, twenty twenty four. Yeah. Andy Farquharson: Okay. All right. So and well a couple of questions. Firstly, how's non retirement treating you? Shannon Litton: Yeah, well, I'm not bored anymore. I can tell you that. Andy Farquharson: Ha ha ha Shannon Litton: I I'll tell you where I think I was in my career now that I can, you know, look backwards. I had led agencies for 20 plus years. And, you know, I I loved it. But every day was a little different, but it was mostly the same, right? It was the same different problems that were the same problems. And so I I think I was I really was just not wanting to do the same thing still. And I had also this great team that was ready to take over. And if I stayed, I was capping what they could do. And so for me, it is the challenge of this new role that I love more than anything. I'm getting to not only participate in employee ownership on a larger level. you know, we have now 1,500 employees across our companies, and so not only to participate at that level. also to to be a real advocate for employee ownership. one of our companies leads MA strategy, diversification strategy for other Aesops. So in our professional services group. So you know, we really just get to go out and help other companies acquire companies to become Aesops. So that just the impact that I'm able to have now, but also the learning. I'm just every day I am challenged and learning something new. And I think for me that's that's the most exciting thing. You can teach an old dog new tricks, I guess, is what I'm learning. Andy Farquharson: Very exciting. And when you guys went into three of the three LS group, I mean I'm sure like you were still servicing the same clients, your team was still operating together. Shannon Litton: Right. Yep. Andy Farquharson: Did you see any shift when that went from a thirty percent to a hundred percent owned ESO in terms of yeah, they're back? Shannon Litton: it's a great question. I think, I think we did. I I would say the shift was more our ability to be part of a bigger group of Aesops was very valuable for us in ways that I don't think we even understood. For one, all of the work of administration of the ASOP and you know, buying benefits and things like that got taken off our team, right? So that alone. was a great thing for a smaller business. But also we have this group right now. I've got five companies in our in our professional services group. And so there is a I I call it the best peer group you can possibly have because those five business leaders are truly tied to each other's success because we're all in the same ASOP. So the ability to sit with you know it can be very lonely and isolating as an entrepreneur. And so the ability to sit in this group of fantastic companies that are have some similarities and some differences to you. There's a lot of ways we are learning from each other. And we love, love that being in a bigger group of companies in a way I don't think we even expect it. Andy Farquharson: was there any change of location or like of of of office? No, everything just sort of continued on with just with Shannon Litton: No, well, yeah, there will be. So we actually just bought a a corporate headquarters that's being remodeled now. and it's three buildings down from where five by five is currently headquartered. So very Andy Farquharson: really? Shannon Litton: close. but we do have our we have companies, three LS companies across you know all of the eastern United States. And so and we have a lot of our companies are fully remote, some aren't. Five by five's partially in the office, so our corporate headquarters we're just excited to have a place where we've got a conference center and place where everybody, all of our companies can can come together. Andy Farquharson: Very cool. let's just sort of just want to transition a little bit more to to to your role at like the the the Tennessee Employee Center of Employee Ownership. As you're thinking about Shannon Litton: Yeah. Mm-hmm. Andy Farquharson: like the broader sector as a whole. I mean, what do you think are the biggest challenges like that the that the the whole movement is experiencing? Shannon Litton: Right. I think awareness is our number one challenge. It always has been. I love what you do, Andy Farquharson: Yeah. Shannon Litton: Andy. Thank you for what you do. I I think we've got to, my, you know, if I could state my personal mission or goal is that every exiting founder considers employee ownership. It's not everybody's not going to choose it. There are some situations, I'm sure, where it's not the right choice, but not enough exiting founders look at it or even know that it's there as an option. So I think we've got to, we've got to do a better job. I also think we have to do a better job as an industry in in telling the stories and not just talking about the mechanics of how an Aesop works. So we are really chart heavy. We love our spreadsheets. We love our flow charts. And we have some of the best stories in business globally, right? So we've got to be able to tell those stories in a better way. I mean, it I I have done this myself, and yet it's still nothing irks me more than when you ask somebody about employee ownership and they start with, well, it's complicated. Because it is complicated, but you know what? So are my business taxes. But I don't do them. I hire Andy Farquharson: Totally. Yeah, yeah. Shannon Litton: somebody to do them because I have to do them, right? so yeah, I I think we've got to change some of some of that language so that so that people can understand it. Andy Farquharson: Yeah, absolutely I like I I think that's a that's a big part of the conversation this in general. You see that there's not there's not many voices of the employee owners like present at all. I I'm guilty of that too. Shannon Litton: That's right. That's right. Yeah, yeah. Andy Farquharson: I haven't really sort of had any that come on, but yeah, I think that's Yeah, absolutely that was the next password I going next. Shannon Litton: Yeah. Can I tell you one story that I love? We okay, we have we're we're just getting ready to go get this story on video. I'm so excited about it. But we have a a lady. So in in 3LS, as Eric would have shared on his episode, it started as in the human service space. So a lot of foster care, just really amazing frontline workers over there that have given their life to taking care of of you know children and families. And one of those frontline workers had been with a company a very long time and she was getting ready to retire. And she tells us now that she had always looked at that statement and thought, is that a real number? Like that can't be. And it got bigger and bigger and bigger. She's like, that can't be real. And she retired and found out. It was real and that that's the amount of retirement she was getting. And then she had to go tell her husband because she had never even told him that her Aesop existed. Andy Farquharson: Wow. Shannon Litton: So she got to surprise her husband with this crazy retirement check that they were getting. And it was because she was always a little skeptical. I don't want to tell him if it's not real. Isn't that amazing? So can you just imagine Andy Farquharson: It's not real. Yeah. That is so amazing. Phenomenal. Shannon Litton: being her husband and he she walks in with a well significant check. I know. I love it. Love it. Andy Farquharson: Yeah. Yeah, that's phenomenal. So great. Yeah, yeah, that is that is awesome. yeah, like stories are absolutely key. and to be honest, I one of the stories I have loved hearing about is like the the the story that we're seeing of eSops growing through acquiring other eesops. Shannon Litton: Yes. Andy Farquharson: which is also I mean helping it's mutually beneficial, obviously Shannon Litton: Yes. Andy Farquharson: helps with that sort of repurchase obligation by creating sort of different Shannon Litton: That's right. Andy Farquharson: sources of revenue, which is amazing. So me where do you see like that that journey for for for three L S in terms of going and acquiring more eSOPs and and obviously you're it's something that you're supporting as well. Like yeah. Shannon Litton: Yeah. Yes. Yeah, I I think it is I I do think it's the next frontier. I think it's it's what will move the needle on employee ownership. I I we have acquired some very large companies, some large for us companies with our did our largest acquisition, 600 employees earlier this year. but we have also acquired we're closing on a company that has two employees. They couldn't have become employee owned on their own, but they are a strategic fit within our professional services. so the ability to take employee ownership kind of broader through acquisitions is really exciting to me too. so yeah, I I one of the things though I do wish, Andy, is I think we've got to our metrics have to change a little bit. We talk about the number, and I I know it's because of available data, but we've got to figure this out. We talk about the number of of eSops. And I will tell you right now, 3LS is doing a terrible job of destroying Andy Farquharson: Yeah. Shannon Litton: the number of ESOPs because some of the Andy Farquharson: Yeah. Shannon Litton: companies like ours, we were an ESOP, that ESOP closes. We need to count the number of employee owners. The number Andy Farquharson: Mm-hmm. Shannon Litton: of employee owners is really the metric. We're gonna see, I think the consolidation we're gonna see into. Holding companies is gonna make all of our employee owned companies stronger. But the numbers are not because I heard somebody last week like the numbers are staying flat. And but we've got to look at the number of employee owners because I think that's really gonna be the metric to watch. Andy Farquharson: Yeah, look it's it's always the secondary metric. When I do hear people talking about the numbers, look, the the number of ASOPs Shannon Litton: Yeah. Yeah. Andy Farquharson: is flat board, but there's more members. and there's a greater amount of money sort of allocated to that. Yeah. I Shannon Litton: Yeah. That's right. Yeah. Andy Farquharson: I'm I'm with you. We've got to change that metric. Do you is that is that something that's a driving force there at 3LS? Like that that number of employee earners? Shannon Litton: Yes, absolutely. I mean, absolutely. When we when we look at, you know, acquiring companies. and and the exciting thing is the company we acquired that's, you know, 600 employees is they're they're in that human service space. So they're also just great people. None of them got into employee ownership space because they wanted to be wealthy, right? They got into it because they are passionate about what they do, they're very mission minded. And so the ability to bring that company in that was not employee owned, wasn't even on their horizon prior to this, and say, we want you to keep doing all that amazing work. We are also in this mission with you. And you can have a stake in the ownership outcomes. that I'll tell you, that group is really, it's so fun to watch them coming in and embracing it in a in a really great way. Andy Farquharson: Yeah, that's amazing. I said so many stories and many more to be told, Shannon. this has Shannon Litton: That's that's the plan. That's the plan. Andy Farquharson: been such a great conversation, but before I let you go, I ask everyone like just a couple of quick questions. if just a fast round, if are you up for it? Shannon Litton: I'm up for it. Let's go. Andy Farquharson: Okay. All right. So who is the leader that you most admire in employee ownership? Shannon Litton: supposed to be fast. Andy Farquharson: Ha ha ha. Shannon Litton: there are a few, but I'm gonna have to go with Eric Strickland as I watch the way he has within 3LS built that company to to be what it is today. And also the vision, he is the best visionary leader. I've had hundreds of clients that I've gotten to work with, C level executives. He is the best visionary I've ever met, and I think that's what we need in employee ownership. Andy Farquharson: Okay, very exciting. now this is a good one. Considering the the depth of research that you did before your first transition, I mean, what's Shannon Litton: Mm-hmm. Yeah. Andy Farquharson: your favorite resource on employee ownership? Shannon Litton: I think NCEO has some really great information. I think it's some of the simpler information. I like what they put out. there's another podcast, Andy, called the Aesop Guy, Philip Hayes, and I think Jason also does that now. I think that's a a really good resource as well. And then I will say Andy Farquharson: Okay, awesome. Shannon Litton: Aesop Association has some of the better. videos of the of transitioning companies. We pulled some of their videos to share. When you're a new ASOP and you don't have the stories yourself, I'm a big fan of borrowing. Like here's what other Esop companies, here's their success. They have some great videos to share. Andy Farquharson: I haven't gone and checked out those videos, so I'll definitely do that. Shannon Litton: Yeah. Yeah. Andy Farquharson: and then lastly, what what would you say to a business owner who's sitting on the fence regarding a transition to employee ownership? Shannon Litton: I think the best thing we did was a feasibility study. So for not a lot of money, you can have somebody that really understands ASOPs walk you through because there are a lot of different ways it can be structured. So somebody that's really good at that feasibility study will say, What do you want out of this? They looked at us with three different, you know, ages of owners. My my other partner actually retired right after we did this. He's retired, moved on, and Josh is still running five by five. So they listen to us, put that study together to show us not only what the value is, what the value would be at different metrics, but also the ways that we could structure that and what it would look like for us financially. just do that part. I mean, don't, don't skip that. Do that part if even if you're not sure if it's for you, get all the information because when we started looking at those numbers. and some of the other warrants, SARS, some of the other things that you can layer on financially into the structure Andy Farquharson: Yeah. Shannon Litton: of those deals, it really became clear for us that it would make sense. Andy Farquharson: Very cool. Awesome. Shannon, thank you so much for your time. where can people go if you wanna like to if they want to sort of reach out to you or learn more Shannon Litton: Yeah. Andy Farquharson: about your story? Shannon Litton: Yeah. I'm on LinkedIn at Slytton, so you can find me there. And then 3LS.com has information. If you wanna reach out through that, you're welcome to do that as well. Andy Farquharson: Brilliant. Shannon Little, thank you very much for joining us on the alternative exit. Shannon Litton: Thanks, Andy.