Owners Versus Entrepreneurs

Jan 8, 2009  |  Michael Wurzer

The other night I had dinner with Dan Woolley and Greg Robertson, two friends who are serial entrepeneurs now working on building their third business, Dwellicious.  During dinner, we had an excellent discussion on the pros and cons of an ESOP and employee ownership.  When I got home from dinner, I cruised through my feed reader and came across Glenn Kelman’s post A Free Call on the American Economy, which I think summarizes the issues quite well (in my words):  owners are inclined to survive and entrepreneurs need to strive.

Entrepreneurs are risk takers, willing to step up and out in order to create something new.  The emphasis is on something new — they want to create that new business and will do whatever it takes to make it grow.  Owners, in contrast, are more conservative.  They’re looking long.  They already have something they’re looking to grow and build upon, and not lose.  These are entirely different perspectives, whether you have your own money on the table or not.

During dinner, Greg asked why I turned FBS into a 100% employee-owned company as opposed to going it on my own.  My response was longer than I want to write now, but a decent summary is that I’m an owner and not an entrepreneur.  I don’t want to take huge risks but I want to grow FBS with like-minded people.  Making employees owners is all about risk distribution, creating accountability, and building a company designed to last.

At the same time, this from Glenn’s post resonates with me:  “So while ownership is an important virtue, the willingness to take risks on a big idea is too.”  There’s no doubt risk-taking is important to every business, otherwise you stagnate and likely die.  This is the challenge we have before us, how to maintain our ownership mentality while taking sufficient risks to grow.

2 Responses to “Owners Versus Entrepreneurs”

  1. Brian Wilson says:

    This is very interesting to me. Without getting into anything you would consider private to your business, what is your model? When you say you gave ownership of your company to your employees does that mean you gave your employees profit equity or voting equity or both? Is that equity granted to the people in your company’s roles or to the roles themselves, granted to whomever is currently filling that role?

    Also, did you require your employees to buy in and share the financial risk? In my business dealings the experiences have taught me that like Ross Perot says, “Everyone has got to have skin in the game” if partnerships are to work.

    And my last question is whether you have received the full trade-off you were expecting for. A company can achieve employee buy-in and accountability without offering ownership equity through good leadership, creating a sense of importance in what the company is doing and through social recognition. Why did you decide to go beyond those things and share the equity?

  2. Brian, FBS is owned through an Employee Stock Ownership Plan or ESOP, which is a qualified retirement trust account with the employees as beneficiaries. So, the employees own the equity through the trust but I vote the shares as the trustee (except for major issues like sale of the company). The shares are owned by the individual employees and not the the role. Employees were not required to invest their own money, but the purchase of the stock was fully leveraged and so, to some extent, all the shareholders bear the risk.

    I do believe this approach was right for FBS and for me, personally. The value of our company has nearly tripled in the four years we’ve had employee ownership, and I’m pretty sure that wouldn’t have happened without it. Equally important, I like working with co-owners, where we all have something important at stake and talk a common language centered around the financial performance of the company to drive the business. It creates a positive environment where we’re all rowing in the same direction.