Eric Rieger turned down private equity and sold WEBIT Services to his own employees. The real numbers on what an employee stock ownership plan costs and how it works.
Show Notes
Eric Rieger spent six years researching how to sell his managed service provider (MSP) to the people who worked in it, then about twenty minutes signing the paperwork. Private equity had been calling for years. Handwritten letters to his home address, his mobile ringing, six or seven offers in a week once WEBIT Services crossed $5 million in revenue. He turned all of it down, because the people who built the company had become his friends and he could not picture handing them a new owner on his way out the door.
This is the exit conversation almost nobody in managed IT has on the record, with the numbers attached. About $70,000 to set the employee stock ownership plan (ESOP) up, and up to a quarter of a million for companies with a messier structure. Five or six thousand a year to administer, plus a $10,000 to $15,000 annual valuation. Four prerequisites before anyone should attempt it. A seller note instead of a bank, because he wanted to stay in control of the payments. And then the part nobody warns you about: how an employee actually turns those shares into money, and how you design the payout schedule so a wave of retirements cannot drain the business.
Eric also explains why he thinks the door is closing. Private equity is lobbying Congress to make employee ownership harder, because it sees fewer than seven thousand employee-owned companies in America and still treats them as a threat. He is writing a book about all of it.
What we cover:
- Titanic Enterprises: a T-shirt side business, named as a joke about two fathers who were terrible at business
- Talking his way into a software developer job without ever having written code
- Quitting, then being hired back as a consultant, which became the first MSP contract before either of them knew the term
- Four colleges, a materials management degree, and thirty years of fits and starts
- Robin Robbins, Gary Pica and TruMethods as the education he never got in school
- Letting go of operations early, because the tech never excited him and the sale always did
- His four pillars: people, operations, finance, and sales and marketing
- Small Giants, open book management, and 2016 as the year the direction changed
- Referrals, the nonprofit niche, and the warm 250 after every outside marketing channel failed
- Handwritten letters at home and six offers a week once revenue crossed $5 million
- What an ESOP actually is: a trust, ERISA, shares issued every year, a valuation every year
- What it costs, to set up and to run
- The four prerequisites: $5 million in revenue, twenty employees, taxes paid, no debt
- Why he started at 30%, and the seller note that made him the bank
- An independent valuation that came back higher than he expected
- Selling the other 70% by merging into an employee-owned holding company
- Vesting cut from six years to three, and 4% 401(k) matching for his team
- How an employee gets liquidity, and the payout design that protects the cash
- The fractional chief financial officer (CFO) who pushed the merger through knowing it would end her own engagement
- People over profits, and why he is not an anti-capitalist
- Private equity lobbying Congress to make employee ownership harder
Eric Rieger: https://www.linkedin.com/in/ericrieger
WEBIT Services: https://webitservices.com
What is Play It Smart?
Play It Smart is the show where Alexej Pikovsky sits down with MSP operators and business owners and takes apart how they actually do it: winning clients, pricing, staying lean, using AI, and building toward an exit worth having. Season 2 is dedicated to MSP operators. Past guests include Rand Fishkin of Moz and SparkToro and the founders of Chili Piper, Flowchat and 3DLOOK.