Bicycle For The EO Mind

Meet Ted Hall, founder and board chair of ShopBot Tools, and Anne-Claire Broughton, founder of Broughton Consulting and former executive director of the North Carolina Employee Ownership Center. Founded in 1996 in Durham, North Carolina, ShopBot designs, manufactures, and distributes computer numerically controlled (CNC) routers with about 35 employees.

Some takeaways:

How being an open-book management company with profit sharing perfectly paved the way for their EOT transition.
Ted’s innovative earn-out structure as a 70% shareholder—taking 10% every year for 10 years—aligning his incentives with the company’s ability to operate profitably, reinvest, and continue profit sharing throughout the buyout.
Why ShopBot’s fluctuating profitability made it less appealing to third-party buyers, even though it was consistently profitable overall, making employee ownership the most sensible exit path.
The importance of state trust laws when planning for an EOT transition—North Carolina’s trust law played a key role in ShopBot’s unique governance structure.

Click here to watch this episode on the Zolidar YouTube Channel.

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CHAPTERS

(00:00) - Introduction to ShopBot Tools and Employee Ownership
(02:54) - The Challenge of Transitioning from Business Owner to Exiting
(08:34) - Common Experiences in Business Succession Planning
(09:37) - Family Legacy and Profit Sharing in Business
(13:38) - Open Book Management and Employee Engagement
(15:49) - Understanding EBITDA and Its Role in Business Transition
(16:26) - Realizations About Employee Ownership and ESOPs
(17:24) - Discovering the EOT Model and Its Benefits
(21:36) - Establishing Governance and Employee Voice in EOT
(24:35) - Navigating the Transition Process and Legal Considerations
(26:38) - Navigating Funding Challenges for Employee Ownership
(31:46) - Transitioning to Employee Ownership: Lessons Learned
(35:50) - The Roadmap to Employee Ownership Transition
(37:54) - Evaluating Employee Ownership as an Exit Strategy
(41:59) - The Role of Technology in Employee Ownership
(45:25) - Empowering Employees Through Financial Literacy
(47:18) - Podcast Outro

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KEY TERMS USED IN THIS EPISODE:

REFERENCED IN THIS EPISODE:

WHAT TED WANTS TO HEAR FROM AUDIENCE MEMBERS

Ted wants to hear from other companies or founders considering a transition - especially those who may be interested in learning more about Employee Ownership Trusts (EOTs) or are navigating their own transition planning process. Find Ted on the Grid!

© Copyright 2025 Zolidar, Inc.
Note: This podcast is not investment advice and is intended for informational and entertainment purposes only. The views expressed in this episode are solely those of the guest(s) and do not necessarily reflect the opinions of the host or Zolidar.

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Creators and Guests

Host

Matthew Epperson

Bicycle for the EO Mind Host, Employee Ownership Domain Expert at Zolidar

Guest

Anne Claire Broughton

Founder | Broughton Consulting

Producer

Sana Saeed

Bicycle for the EO Mind Producer

Guest

Ted Hall

Founder | ShopBot Tools

What is Bicycle For The EO Mind?

Most small and medium businesses (SMB) struggle to sell — employee ownership is a proven exit path. Hear real stories from business owners who transitioned through employee ownership. Whether you're an owner, advisor, or investor, we dive into expert insights, practical strategies, and how technology is reshaping exit planning.

Ted Hall (00:00)
It had always seemed like well, at some point somebody's gonna knock on our door and offer a very advantageous strategic purchase for the company that we could turn around and say to the management team and to the employees, wow, you know, this is a great deal. Everybody's gonna benefit from this no matter what happens after. And I'm sure like many other business owners in the same situation, that never came to pass. And all of a sudden, as I started exploring employee ownership and was more confronted with reality as well. You know, whether it's employee ownership or not, you need to think about a transition.

Matthew (00:35)
Today my guest is the founder and board chair of ShopBot Tools, Ted Hall, and his EO advisor and Great Game of Business coach, Anne-Claire Broughton, founder of Broughton Consulting, as well as now ex-executive director of the North Carolina Center for Employee Ownership. ShopBot was founded in 1996 in Durham, North Carolina, where they design, manufacture, and distribute computer numerically controlled, or CNC, routers for milling, drilling, and the cutting of wood, plastic, metals, and other materials. In this episode, we explore ShopBot Tools' transition to an employee ownership trust, or EOT, ownership for their 35 employees. Some key takeaways include how being an OpenBooks management company perfectly paved the way for an EOT transition, how Ted structured an earn-out for himself as 70 % shareholder in the company, taking 10 % of the earn-out every year for 10 years, and thus aligned incentives with the company's ability to steadily operate profitably, reinvest in itself, and continue profit sharing with his employees throughout the buyout process. We covered Ted's realization that the ups and downs of profitability made shop bought tools less appealing to a third party buyer, even though it was a consistently profitable business, and thus why EO ultimately made the most sense for their transition. And some of the intricacies of how state law is very important to consider when planning for an EOT transition. If you enjoyed this podcast, don't forget to subscribe and follow it on your favorite podcasting app or YouTube. It's the best way to stay connected and helps the show tremendously. With that, I bring you Ted Hall and Anne-Claire Broughton. Let's ride.

Matthew (02:14)
Welcome back everyone to the Bicycle for the EO Mind podcast. I'm Matthew with Zolidar. Today we're speaking with ShopBot Tools, which is based in Durham, North Carolina, and has about 35 employees and manufactures CNC, which stands for computer numerically controlled tools that have endless uses in education and small manufacturing. Ted Hall is the founder and board chair, and I also have with me Anne-Claire Broughton, principal of Broughton Consulting and founder of the North Carolina Employee Ownership Center who assisted with ShopBot's EOT transition. So I wanted to start at the earliest stages of your process before you even knew about Employee Ownership Trusts or had decided to become an EOT. So what prompted you to consider selling your business?

Ted Hall (02:54)
Well. Kind of in terms of the question about working in rather than on, I think, you know, your business advisors are always telling you to step back, think about strategy planning, you know, who you've got coming after you and what the transitions for the business are gonna look like. But the reality is, that for most of us, we're either too busy or we're having too much fun to really begin thinking about our own exit or transition out of the business, what we want to do with it, that kind of thing. And for me, that was certainly the case. And certainly for a lot of other business owners, small business owners, I'm mostly talking about less than 100 employees, that kind of thing. But, you know, there's just not a lot of time available for that. And it doesn't, it's also not a topic that's much fun, you know, because it reminds you that you're getting old, you've got to do something, you know, and get it all figured. It also reminds you that maybe your business hasn't accomplished quite as much as you would like it. Get happy. So all of those things kind of discourage you from thinking about the topic. For me, I think that while I was starting to get little hints that transition was something I needed to think about, or a sale, or how to divest the business, I had for a long time been interested in employee ownership, mostly because of coming from a family that had manufacturing in my background and the obvious candidate to explore in the United States when you start thinking about employee ownership is looking at ESOP's employee stock ownership plans. And that was sort of my jumping off point for starting to think about transition. And one of the first realities you get confronted with when you started exploring ESOPs is that you realize that from an awful lot of people's point of view, they're really not about employee ownership, but they're about how do you get out of your business. So that kind of brought in the idea, well, an ESOP is really a sale. I maybe wasn't thinking that when I started.

Matthew (04:55)
Yeah, it sort of organically emerged and also had some family history, which is really interesting as well. So yeah, what were some of your top of mind considerations when you were really getting into that and you were getting these hints and you were thinking about the accomplishments and how am going to work more on the business versus in the business? were some other things that were kind of top of mind for you?

Ted Hall (05:13)
Well, I personally don't come from a business or an entrepreneurship background. Not that I'm not interested in it, but I'm basically a scientist by training and worked in research and teaching for 25 years at a university. Like a lot of people, it was a garage hobby that I turned into a business and kind of the old fashioned way, literally came from my garage. So that. I think set me up for how I began to think about it. We had a business that while we were engaged in manufacturing, it was a relatively high tech. We were in a robotic tool business and we interacted a lot with sort of West Coast technology companies and that kind of thing over the years. And it had always seemed like well, at some point somebody's gonna knock on our door and offer a very advantageous strategic purchase for the company that we could turn around and say to the management team and to the employees, wow, you know, this is a great deal. Everybody's gonna benefit from this no matter what happens after. And I'm sure like many other business owners in the same situation, that never came to pass. And all of a sudden, as I started exploring employee ownership and was more confronted with reality as well. You know, whether it's employee ownership or not, you need to think about a transition. You know, along the way, I had participated in some of those kind of ownership seminars where people talked to you about selling your company and things like that. And as time went by, I had an evaluation or two done of the company. And that immediately confronted me as it does with most small business owners with the idea that well, you know, the reality is the best you're going to do the best is some sort of financial sale that values your company despite the fact that your evaluations people. Set your evaluation up in terms of four, five, six, seven different factors that they're going to take in consideration in doing the evaluation. When it comes down to a financial sale for a small business, it is a question of EBITDA and what your profitability has been. And it's got to be your profitability over just a couple of recent years, which for most small businesses, you know, this goes up and down like crazy. So the reality is, this is going to be a tough thing to get a good deal going to be a process that really takes a lot of work, takes a lot out of you, and won't be very much fun. So, you know, there's a lot of discouragement in terms of selling your business and thinking about, if I have to go through all that, why not do it in a way that feels better to me, that makes sure the business gets turned over to the people who are currently engaged in it, would like to see it carry on, are enthused about it, and will be making contribution to their community and the community of your existing customers at the same time. So I think that was what was on my mind.

Matthew (08:10)
Yeah, that's a lot of things to have on your mind, and I'm sure a of small business owners too, like you were saying, like expecting that third party offer to come and not necessarily being there, attending seminars to help you think about this. Anne Claire, I also wanted to give you the floor as well, because I was curious, like, is Ted's story sort of common to what you've experienced in terms of like how owners are finding out and thinking about their different options when it comes to exiting?

Anne-Claire Broughton (08:34)
Yeah, think Ted, you know, reached a certain age and wanted to do some other things with this time and needed to figure out next steps. And we see that a lot. People, it is hard, like Ted says, to work on the business, not just in the business. So we encourage people to start thinking about succession planning well, you know, five years in advance if they can and start. Planning and we're bringing lots and lots of education through the employee ownership center, hoping to bring these options to people sooner because a lot of people haven't heard of an EOT much less an ESOP or any other option. They're just looking for that sale that may or may not come. So yeah, it's a common story, but it's great how Ted approached it. And I really love Ted, your stories about your grandfather who ran an exemplary manufacturing plant and shared profit sharing and kind of planted that seed in your mind. I don't know if you want to talk about that a little bit.

Ted Hall (09:37)
Yeah, I could just mention that. I mean, I do come from a family of manufacturers. My father was that generation that discovered plastics, and so he had a plastics manufacturing operation, and my grandfather was kind of the star in the sense that, you know, he didn't even finish high school, but developed a business in the community that we grew up in a small town in Ohio and from the beginning, he had set up profit sharing, which I think to most of us hardly made any sense at all, but every week there was a number and that number figured into people's pay, which is pretty amazing to me. He had a strong interest in employees being involved and fairly treated and that kind of thing. I think it left a lasting impression on me. Our point of view, ShopBot has been profit sharing from the day it started. The problem is, you're starting a small business, know, your fortunes go up and down. And sometimes you have money to share and sometimes you don't have any profit to share, that kind of thing. And it's pretty erratic and it's hard for employees to actually see what's going on and to get engaged with it. And even though we had tried to be open books, open books was like me giving a lecture. Three or four times a year, quarterly, you know? And I could just see people's eyes gaze over. Nobody ever said anything to me about it. Our books were totally open. Anybody came up and asked about us, we'd be happy to show them, but you know, it just wasn't there. And I think you're aware, Matthew, that I met Anne-Claire because she got involved with us as kind of in her business coach role and engaging us with the Great Game of Business program. That has such a nice straightforward method for getting employees involved in understanding the books. It's basically an educational program and it's done in a way that makes it fun rather than, you know, adult lecture for me. It gets people involved in the process of understanding how the books reflect what the company is doing and how that relates to us. And, you know, not everybody gets pulled in by something like that. But all of a sudden, you know, I would find myself walking through the hallways at ShopBot and one of the people would just tap me on the shoulder and say, hey Ted, would you explain a little bit more about that thing we were talking about on the scoreboard last week, you know? And it just made everything more fun, more interesting. And I can't thank Anne-Claire enough for having gotten us started on that because even though by principle, that's where we were in practice. We weren't there yet.

Anne-Claire Broughton (12:13)
And it served a couple of great purposes because it did get employees super engaged, which set the stage for the EOT because people really need to know how the business is doing and how they can contribute to it. And then the second thing that it accomplished was we right away found some low hanging fruit of where we could save money and improve the margins and set the business up. So you were more able to do a transition. So I think it was very helpful for you guys. I'm so glad.

Ted Hall (12:43)
Yeah, and you know, because great game of business makes profit sharing a component for most people that engage with it. It helped reinforce that for us and gave us a better methodology for setting up regular payments or non-payments in the sense of people appreciating, well, we didn't do very well this quarter, you know, that kind of thing. And where on the where in the books was it that it happened that we aren't making any money? And that was very helpful because that becomes a big part of how the EOT benefits are going to work. If you're on top of communicating how profit sharing works and how that's related to various acts of performance of the building of the business, I think it's a big deal. You know, one thing I didn't really worry about was how we were going to bring employees on board for an EOT because so many aspects of it were already there.

Matthew (13:37)
Yeah, that was a specific curiosity I had. I'm hearing, like you've built this culture of open books, and then you got Anne Claire helping with becoming more engaging, and you're getting folks tapping on the shoulder, asking questions as follow-ups, and the engagement is growing. And you'd also previously mentioned, Ted, about how EBITDA was a good check-in point of like, are we actually ready to transition? I'm curious, can you talk a little bit more about that? I were you already looking at EBITDA? And like, were those check-ins for your open books kind of leading toward like, that's how this is going to work when we transition to an EOT?

Ted Hall (14:05)
Yeah, having a small manufacturer operating profit, it's actually a pretty small part of your budget and so whether you're profitable or not is a very sensitive to making slight gains, know, or losses in aspects of performance in terms of your cost and overhead items like that sales in relation. And so people see that, you know, we don't have to do that much better to be at the 10 or 15 % operating profit level where there is more than enough money to share for both growing the business profit sharing and paying back owners, whether the owners happen to be traditional owners or employee owners and so it helps you conceptualize the business for people in terms of what the cost of goods are for the things you're going to sell, what your overhead is, what you're going to have left after you have this much revenue. And that, I think for employees, is kind of eye-opening because it shows them where the real incentivization for them is going to come from and how there are profits in the reasonably operating business. It's about being reasonably operating and then everybody can be well rewarded.

Anne-Claire Broughton (15:27)
And I'll just add that the scoreboard in open book management is your condensed profit and loss statement. So as Ted was saying, people see revenue buckets, cost of goods sold buckets, and expense buckets, and then they see that operating profit every single week, and they're able to strategize about how to improve the numbers.

Matthew (15:49)
Right. Yeah, it the mystery out of it. And then people can see like, how does it what I'm doing day to day ultimately connects to that bottom line? Absolutely. It sounds like I'm hearing maybe a couple of aha moments, but I'm wondering if there were other aha moments during the exploration.

Ted Hall (15:49)
Yep.

Anne-Claire Broughton (15:56)
That's right.

Ted Hall (16:03)
Yeah, well, so I guess the first aha moment was that, you know, employee ownership is as much about it being a business transition as it is about employee ownership. You know, it really depends on who you're speaking to. Employee ownership is a wonderful thing. And I think the other topics, though, it being a reasonable exit strategy and business transition, that's an interesting thing too. That is a big, big part of putting employee ownership in place. But once it happens, that's gone. So it is a big deal to the exiting owners, the shareholders of the business that's decided to go employee ownership. But once employee ownership is in place, that's what it's all about. So, you know, it's who you're talking to. Are you talking to exiting owners? Then, you know, you need to have the conversations about exiting and what this really means and how even though, you know, you're thinking about something bigger, you're thinking about employee ownership, distributions of profits and things like that, you know, at some level a sale has to happen here. You've got to transition where those shares are to somebody else.

Matthew (17:10)
I was going to say, know, so we'll get into this particular, know, so that Chris Michael was a huge part of this transition as I understand it. And, you know, I've heard him use this expression before, naked in, naked out, which it sounds like that piece of it was very much a draw for you. Is that fair to say?

Ted Hall (17:24)
Yeah, naked in, naked out makes a lot of sense and I'm sure we'll kind of get back to what that means. But I was at the second of these big conventions that I intended. The first had totally discouraged me, both because of being overwhelmed with what you had to do to make one of these things happen. And second, because I had actually signed up over the years with a couple of different ESOP companies and gone through the first couple stages of that. And if I hadn't already known that EBITDA or profit is the main determinant of any valuation for financial sale. I was certainly convinced by what happened when I went through the first stages of ESOPs where the valuation is what they do and basically use a template which tells you the seven different ways your company is being valued but comes down to a multiple of EBITDA for the valuation of the company. Now there is some you know, aesthetic call and what the multiple choice is going to be. But you know, for any given industry, there's a relatively narrow range of what current multiples are based on size of the company and things like that. So it's pretty easy to get a rough idea of what your company is worth. And of course, that's always the other reality check. It's never worth what you would like it to be worth. But as I was at these conferences, the second one I went to, I was talking to somebody in the hall and they said, well, it sounds like you're more interested in something like this thing they call an EOT. And you know, there is one session here about that. So the next morning they had Chris Michael stuck at like eight o'clock in the morning or something like that. So I got up and went to the session and it was like, wow, you know, this is what I've been looking for for two years. You know, he basically said something that made total sense to me, which is let's have a form of employee ownership that benefits employees at the time that they're participating. You know, are, EOTs can be set up in a lot of ways. And I suppose there are many imaginable forms of benefit sharing that could happen, but profit sharing is the most straightforward and obvious one. And, in profit sharing, you basically accumulate how the company is done as you go along. You don't wait till the end point to find out, after my 30 years of working for them, even though they went way up in the middle, well, they're down now, and so my stock, my theoretical stock isn't worth much. In a and EOT, the one that Chris Michael described at this meeting. The typical approach is that the trust owns all the shares of the company and profits are shared. In a profit sharing manner, just in a straightforward way. There's nothing different about the accounting really, other than the kind of boxes you separate it into from profit sharing that happens in an EOT versus profit sharing that happens normally for the company. So profit sharing is an expense to the company. But yes, running into Chris Michael, finding that there is a simple, straightforward way to do this. It doesn't involve the government, really, because you're essentially setting up

Matthew (20:33)
Yep.

Ted Hall (20:45)
a trust that holds the shares of the company. It's as if the company owned itself. Rather than sharing its profits as dividend with shareholders, it's now going to share its profits as profit sharing with employees. It's as straightforward as that. It can be operated the same way it's always operated, or if you wanted to, it could be set up as a total, let every employee vote at every instant about what we're going to do. That doesn't make a lot of sense to me. I didn't want to set it up that way. I just want it to be a business that operated as entrepreneurially and competitively as possible, where employees would engage in governance, but they would engage in having helping to set up a regular and hopefully really creative and entrepreneurial management team and management approach.

Anne-Claire Broughton (21:36)
Yeah, so we work together and we set up the trust document and the transaction documents and then also the employee governance document. And I was one of the people that helped to create that document that said how the business operates and, you know, the role of management, the role of the board, the role of the employees. And the goal ultimately for ShopBot will be a third outside directors, a third management directors and a third employees serving on the board of directors. And then we set up an employee governance committee that this current CEO and I trained. And we worked with that governance committee to create a series of three trainings on the history of ShopBot, the open book management and the EOT. And so it's designed for the governance committee to deliver this training three times a year to make sure all new employees are up to speed on the EOT and existing employees are reminded about it. And then once you've served on that governance committee for a year, you're eligible to run for a board seat. But that governance committee holds a meeting prior to the board meetings to get the voice of the employees, get any concerns raised, and bring those to the board. So we did set up more employee voice than we had previously laid everything out in that governance document.

Matthew (22:59)
Yeah, thank you for explaining that and Claire, because, you know, what I'm hearing you say, Ted, is like, you've had this ownership culture, you've been engaging in profit sharing, you've had a, you know, a strong streak of building that participatory culture. And then it feels like, you know, so you've, you've met Chris Michael, you've been turned onto the EOT model, and Claire is going to help you also take it to the next level through the development of these committees. We've got the, you know, the governance and the trust document being developed. I'm curious if like, when you jumped into forming these committees, did it feel like it was a big leap or did that feel like just like a sort of a natural easy next step?

Ted Hall (23:34)
Well, keep in mind, we are small. There are only 35 people. And you you talk about committees, but really these are just people you grab and pull together for the next meeting kind of thing in a way. We had two years before we, when we started the ESOP process, I talked to everybody about converting to employee ownership in one way or another, and not really knowing how that was gonna happen. So that meant that over those next three or four years, there were a number of opportunities to explain what we were doing, why it wasn't going to be an ESOP, why it was something weird called an EOT, that there was little or no precedent for and that kind of thing. So people pretty much had an idea of what was going to happen. And I think our current CEO and Claire were really active in making sure that people got pulled into that process.

Anne-Claire Broughton (24:34)
And we should point out that ShopBot is currently the only EOT in North Carolina. There's a couple more under development, but Ted was a pioneer in making this happen.

Ted Hall (24:44)
Yeah, you know, most of the, well, the handful of EOT people I've talked to are still kind of as much in the dark as I am about how well the way we actually did it is going to work. In theory, there's nothing different about this than there is... I mean, it's basically setting up a trust that's very standard kind of stuff in US law. But the one thing I did learn that kind of surprised me is that trusts differ considerably from state to state. And that's one of the reasons why having some boots on the ground in terms of lawyers who understand trust law and what you're trying to do is important. You need the trust law, or you need the lawyer as well to help create a deal and the structure for the deal. We had trouble with that because people didn't really understand what we were trying to do. I think partly because they didn't want to believe it, but... I don't know. So we basically kind of cobbled things together for that. I think have the accounting side of it too is difficult and probably important to have local hands involved because your in-house accounting and your external accounting firm is important to be integrated into it.

Anne-Claire Broughton (25:57)
And you were really creative too in the deal structure. So at the time of the transaction, some of the smaller shareholders were paid off in full, and then everybody else, you and several other shareholders were issued a 10-year note. But talk a little bit about the valuation and how you structured that to protect the company.

Ted Hall (26:18)
Yeah, so I guess the lead-in to that is that there were two other, at least a couple other reality checks. One was the fact that the odds were incredibly slim that somebody was going to loan us money to make this transition. First, we're small business. We have a credit line, but that's the only real involvement we've had with lending. So what that does is put you in the situation where having confronted that reality, you need to say, OK, how do we do something which is fair to the exiting shareholders, knowing that they're not gonna get a terrific strategic, you know, high valuation buyout of this thing, but that is, you know, reasonably fair to the exiting shareholders. In my case, I own 70 % of the company and the other 30 % was owned by three or four employees had, you know, two to 5 % and then a large part of the company had been issued options along the way as part of our, you know, employee engagement process. We were sort of employee-owned at the time, I suppose you could say, but this is very different now. So we needed to know what we could do that would be fair to those exiting shareholders, and at the same time, leave the company in a situation that they could still pay their normal profit sharing and that they had enough profit left to grow the business, you know, to actively grow the business. And so the first compromise that the shareholders have to take is that that's something that's going to take time to pay back, to pay out. And so we considered the 10 years being a reasonable period of time. And the second, was that if in fact we believe that something fair is related to the EBITDA formula, then why not simply say, I believe that this company really is going to generate the kinds of profits and to grow and develop in the way that I'd like to argue it is if I'm just trying to sell it to somebody tomorrow. So I should be willing to accept that formula. And rather than accept that formula on one day, you know, and receive the full price that you might in a financial sale, what you're going to have to do here is to receive that deal over time. So rather than a fixed price at the time we made the transition, we just said that each year for 10 years, we will take one-tenth of that EBITDA operating profit valuation times the multiple of EBITDA. I mean that's how that that valuation would have been done. So in the case of a small manufacturing business that EBITDA would be three to four to five we took in trying to be fair, essentially a three times EBITDA multiple made that 0.3 each year and spread that out. So each year the company pays off a note that represented one tenth of the purchase price. That note payment can be highly variable, but a tenth of the loan is paid off each time. And we did that because we felt like that's a way that leaves the company able to really work, compete, leaves employees incentivized almost exactly the same way that the exiting owners are. It's in everybody's best interest to work the business, to make money. It helps the exiting shareholders and it helps the employees. Once the transition is complete, the loan has been paid off, then every that goes into the loan payment now becomes part of the employee's profit sharing. And overly simplifying it, it basically means once the loan is paid off, the employee profit sharing is double what it was in the old days.

Matthew (30:19)
Thank you so much for breaking that down. is definitely innovative and something I haven't heard of. But you set it up in such an eloquent

Ted Hall (30:24)
That loan is exactly our multiple, right? It's just a variable. It's not a given thing. It's not unheard of. In fact, in most sales of small businesses, a component of the deal is often financed by the exiting owner in the form of what people call an earn out. And this is exactly an earn out. It's just an earn out that is everything over a longer period than it would normally be.

Matthew (30:55)
Right, and it preserves this expression I've heard before, the sort of second bite of the apple, but now you're talking about sort of 10 bites of the apple, you might say, over...

Ted Hall (31:02)
10 bites of the apple. And there is the concept that distributed over 10 years, the best payouts will be in the ending years.

Matthew (31:13)
Yeah, progressively sweeter apple, we might say. Don't really extend the analogy.

Ted Hall (31:15)
Yeah, yeah, exactly. That's exactly right.

Matthew (31:21)
Amazing. you and we touched on this a little bit in terms of, you know, sort of you know, the governance complexity changing a little bit over time. So we've got these documents, these committees. Yeah. Anything you want to share about like the process of, know, now that we've kind of stepped into the transition, you know, we know that it's going to be an EOT, we're moving in this direction. Maybe like lessons learned from the process of really functioning as an EOT and how much, how much really changed in the business because of this.

Ted Hall (31:46)
I think Anne-Claire may have some thoughts on this, but our intention was that not a lot had changed.

Anne-Claire Broughton (31:54)
Yeah, and I'll just add, I think you did a really good job of implementing the open book management, getting people educated and involved. You were very transparent about the succession planning and that it would be employee ownership in some form. So people were not surprised. And then at the same time, you did have the transition from you as founder and CEO to you're the founder and chair of the board and now Jeannie Taylor is the CEO. And so there was some leadership changeover as well as ownership changeover. And you were able to step back a little bit from day-to-day operations and turn that over to the next generation of leaders at the company. But still, you're there to mentor them and help them. So you've done a good job, I think, on all levels, both the physical change of ownership but also the change of leadership. And it's still. You know, it was meant to be several steps that you would become that mentor. And then once your loan is paid off, you could step away completely. So you're still very involved, but you're out of the day to day.

Matthew (33:04)
Yeah, and one thing I was also thinking about and curious about here. So you'd mentioned some of this complexity with state law and just being so grateful to have boots on the ground to understand legal implications. We've talked a little bit about the development of a trust document. Just curious, could you walk us a little bit more through, how did you find out what documents would be necessary in terms of this transition?

Ted Hall (33:24)
Well, know, Chris Michael laid that out to us at the beginning. You know, he may not have specified exactly which is which is which, but you know, he made it clear to us about what was going to be involved in the transaction documents. The degree to which the trust document itself was the main target because it is the umbrella for which everything going forward goes on. And he roughed out for Anne-Claire and Jeannie Taylor, our CEO, kind of what people had done and thought about in terms of governance and things like that. And so he wrote and participated with our lawyer on the trust document and kind of pointed us in the right direction for the other things that we pulled in the local resources that we had available. The trust document is only a couple of pages long. It is not a big deal. It does try and, you know, consider some of the contingencies. We do map out that, yes, the company, the trust is set up for the benefit of employees, one, but also for the community and the community of our owners and that to the extent to which we do well enough to invest in some of those secondary goals, then our trustee would work with management to maybe direct some money into training in our community and things like that. But of course, the first goal is to benefit the employees and that's kind of what the trust document is organized around. There are a few sentences in it about how they might participate but most of that is covered in our document that we call a governance document. All of the documents are set up in a way that we can fudge them as time goes by, which we know that we're going to have to. The trust is set up itself so that the trust only needs to retain 51 % of ownership. If at some point the company, the management, the trustee, and the directors decide we should raise some financing by selling shares or some such thing, that's still a possibility. It's not one that we've had any interest in exploring at the moment, but we didn't want to take it off the table.

Matthew (35:36)
Yeah, that's very interesting design choice there for the future that I haven't heard about previously. hearing many different innovations in your story, so I appreciate that very much. I was curious, too, about a roadmap. Would you say that you had a roadmap to give you a sense of A to B to Z eventually?

Ted Hall (35:50)
Yeah, think particularly with Anne-Claire, who actually did a lot of counseling and handholding through this process. You know, once I think once we met Chris Michael, we thought this is this is what we're going to do and sort of mapped out a two or three year plan. When you find one that's interested in listening and working with you I tell you you should latch on to them because even if they even if they know nothing they're the person that you want you know because they know that they don't know anything and they need to figure out this new game for you and

Anne-Claire Broughton (36:19)
We actually created a one page abstract about the EOT to educate all of these accountants and lawyers and bankers about what an EOT was. And they had a very hard time getting their mind around it.

Ted Hall (36:31)
They do, it's amazing. the interesting, I mean, after three years, we just said, June 1st, we're gonna do it June 1st. That was about six months away. And we probably weren't really ready the day we did it. And there were probably things that were rushed and that. But if we hadn't set a deadline and we hadn't said we're gonna do it, it wouldn't have

Anne-Claire Broughton (36:54)
And fortunately, I think there's been progress since then. There is a group of people that's trying to move EOTs forward. There's a new purpose trust ownership network, nonprofit, that's trying to streamline the process, create some templates, organize some funding. There's a list now of lawyers and accountants and people that can help that didn't exist back then. So this is a rapidly emerging new structure with employee ownership. Hats off to Ted for making it happen, even in the absence of those resources.

Ted Hall (37:27)
Well, we found our own great lawyer about four months after we closed the deal. Fortunately, he looked at it and he said, I think this looks fine. Let's finish up a couple little details here, which we have attended to and we're moving forward from there.

Matthew (37:44)
Well, we're kind of closing in toward the end of our time. So I wanted to move a little bit toward post transition. So looking back, how do you feel about choosing employee ownership as your exit path for EOT?

Ted Hall (37:53)
Well, and Claire can comment from she's been involved with a lot of other companies now and talking to people about this from from our point of view. It's still, you know, it's running. It's still too early to tell. And in terms of payout to the existing owners, we've had a good year and another year that wasn't so good. We'll see how it goes.

Anne-Claire Broughton (38:17)
I think it was a great fit for ShopBot because you were too small for an ESOP. You didn't want to be a worker co-op. You didn't have somebody banging down the door to do a strategic sale. And you were willing to be a pioneer and kind of create some of these structures yourself. So, and the company is, you know, operating well with a great culture. So it seems to me that an EOT was a super fit for ShopBot and I hope that it results in a great payout for you and the employees going forward.

Ted Hall (38:54)
Maybe, Anne-Claire, it's worth, since you're more in touch with these other groups, also reviewing kind of the different names that people are going to recognize in EOT by.

Anne-Claire Broughton (39:05)
Well, there's employee ownership trust, but there's perpetual purpose trust as well. And the two states that have perpetual purpose trust legislation are Oregon and Delaware. And if you form your trust in one of those states, there are actually very specific ways you've got to lay out the deal and structure the governance. It was important to you, Ted, to do your EOT in North Carolina under North Carolina trust laws. So that's why our governance, the governance at ShopBot is slightly different from those structured ways that they do it in Delaware and Oregon. But those are the main terminologies that we hear is perpetual purpose trust and EOT. stewardship trust is another that you might hear.

Ted Hall (39:49)
So North Carolina at this point doesn't support, doesn't have provisions for a perpetual trust or a perpetual purpose trust, which creates the logic for a perpetual trust. In general, people that collect taxes don't like to let you have a vehicle that you can put something in and never pay taxes on. So. That's not really what we have in mind. And so I think as time goes by, there'll be different structures set up for it. North Carolina's trust law, the maximum length of the trust is 29 years or something like that. And so by the time 29 years happens, we'll have to figure out how to move this on. Some states, it's a different kind of problem. But the way it's set up right now, there are no particular benefits from a tax point of view, other than the fact for an EOT that if, like we, you are paying the benefits to employees and profit sharing, then the company is actually paying those out of earnings, and so they are an expense. So while not a tax deduction, are tax reducing to the effect that practically speaking they reduce your profitability. And so, you know, a well operating EOT, once everything is in place, is only paying taxes on the, essentially the top third of their real net operating profits, which they're putting back into the company in terms of investing and growth. And then to the extent that is represented by capital improvements, that's also becoming. So it doesn't cost you any money and it's saving you in taxes considerably once you have this set up. I mean there are a lot of reasons to look for a more favorable kind of trust for EOTs. There are, you know, the situation as it is, it's not so bad. And it's highly flexible to set the thing up in a way that's attractive to you and your employees.

Matthew (41:52)
I was curious, Ted, could you spend a minute just commenting on technology? Are there any areas where you think technology could have been helpful that you've thought about?

Ted Hall (41:59)
Well, we think of ourselves as a technology company, so we're very interested in it. As a small business, I would say, you being able to curate the technology that's most appropriate for your company is a huge advantage and to be able to do it efficiently is very helpful. In the course of the deal, think, you know, technology in the sense of just availability of information about EOTs will be helpful. The extent to which there are sites people can go to and either get help or just be able to look through what's involved in setting up an EOT. I like the template model. You know, some would have been really happy for a site that had like five templates of five different companies that were fictitious, but just showed the range of different kinds of things you could do, what the trust might look like from different perspectives, how the organization and the rules might look from different perspectives. I think with that laid out, most people would have a pretty good understanding about what the thing needs to look like and what their range of flexibility is. And they may not be able to craft the final documents, but they could get something awfully close for which now a lawyer and an accountant could be a lot more helpful than if asked to generate these things out of the blue. Yeah. that's, so in an EOT, the trust owns the shares. There's no doubt about that. But the trust is for the benefit of employees. So if there's a trust, if you set up a trust with a lot of money for your grandkids, well, you know, they don't own it, but they're going to get it. You know, it's for their benefit and that's the same way the trust works in this situation and it benefits the employees immediately and that brings us back to to your favorite quote from I'm sure that Chris didn't make this up, but it is so true. Naked in, naked out. Your benefits are accrued while you're there, you know? You come in without any of them, you're immediately become the recipient of profit sharing. You're able to accumulate that in your own retirement fund in whatever way you want, and when you leave, that's the end of it. You got what you got. You're not going to get anything extra.

Anne-Claire Broughton (44:16)
I do want to add though that of course we love the wealth building properties of employee ownership and having some sort of account in an ESOP or a worker co-op is a great way to build wealth, but what we've talked about in EOT is just encouraging employees to put some of their profit sharing into their 401k so that kind of accomplishes the same thing.

Ted Hall (44:44)
Sure, and the first thing you would expect the management to do in an employee-owned operation is to make sure the employee contribution to those 401ks is at the highest level possible so that there are really opportunities, even more opportunities for employees to benefit. But that is entirely the employee's choice. And I know we have these concerns about young employees not being ready to start thinking about their retirement. so squandering it, well, that's up to them. I don't think it's not the trust role to be their parent, but to give them the opportunity. And they have the choice.

Matthew (45:25)
Well, hopefully the open books will have also gotten them thinking in new ways about all their finances, right? So.

Ted Hall (45:28)
Yeah, exactly. Exactly. You know, one of the first things Anne-Claire would say was that, you know, as soon as we start talking about how this open book thing works, people are going to start asking for help with their checkbooks and savings accounts and to understand them in the same way.

Anne-Claire Broughton (45:46)
Yeah, I love it when people start to pay off their debts and just get in a better situation through what they learn at work.

Matthew (45:46)
Bye.

Ted Hall (45:53)
Yep.

Matthew (45:55)
Yeah, well, I thank you both so much for your time today. Just as a quick last closing question, Ted, how can our listeners reach you and what would you like to hear from them?

Ted Hall (46:03)
I'm happy to hear from anyone at that. Okay, good.

Matthew (46:05)
We can put it in the show notes. And what would you like to hear from them?

Ted Hall (46:09)
What would I like to hear? I'm happy to hear anything, but I'm most likely to be most responsive to people who are interested in how they can do something about this.

Matthew (46:18)
Perfect. Well, you've done a great service to them to help more small business owners be able to work on their business as well as just in their business. So thank you both so much for being here with us today.

Ted Hall (46:26)
Yeah. You're welcome.

Anne-Claire Broughton (46:28)
Thank you.

Matthew (46:30)
All right, take care, y'all.

Anne-Claire Broughton (46:32)
Take care.

Matthew (46:33)
Thank you so much for listening. If you found this valuable, you can subscribe to the show on YouTube, Apple Podcasts, or Spotify. Also, please consider giving us a rating or leaving a review as that helps other listeners find the podcast. You can find all past episodes or learn more about the show at zolidar.com slash podcast. Also, we'd love to feature your voice in an upcoming Mailbag episode. Maybe you've got a question for us. Leave us a voicemail at 650-203-6565. Or if you prefer, send an email to social at zolidar.com. But remember, voicemails make for more engaging episodes. We really do want to hear your actual voice. All right, y'all. See you in the next episode.

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