I've spent enough time around private equity to understand why it has become such an obvious answer for successful private businesses.
A founder builds something for twenty or thirty years. The business becomes valuable. Most of their net worth is tied up in it. Maybe the kids don't want it. Maybe they're tired. Maybe they just want to take some chips off the table.
Eventually they need a way out.
Private equity is really good at solving that problem.
There is capital waiting. There are bankers who know who the buyers are. There are lawyers, lenders, operating partners and entire industries built around getting a transaction done.
A decent business of any real size can go from "I've spent my life building this thing" to a pretty clear path toward liquidity.
There is nothing inherently wrong with that.
I've worked inside PE-backed businesses and seen plenty of the benefits firsthand. Good investors can bring discipline, better planning, better reporting, accountability and sometimes a level of operating sophistication that a founder-led company never built on its own.
Sometimes a company needs that.
But the more time I've spent around businesses like this, the more I've wondered why another option doesn't come up nearly as often.
Why don't more owners sell the company to the people who work there?
I'm not talking about every employee emptying a savings account and buying shares.
There are already structures for doing this. The most obvious is an ESOP, where employees gradually become beneficial owners of the company without personally financing the purchase.
This isn't some fringe experiment either. Thousands of American businesses already operate this way.
And yet employee ownership still feels weirdly absent from a lot of conversations about succession.
We have built a machine for selling businesses
If you own a good $50 million company, there are a lot of people who would like to help you sell it.
That seems obvious, but I think it's worth thinking about.
There is an enormous financial system built around moving ownership of companies from one group of people to another.
Private equity firms raise money specifically to buy companies. Investment banks exist to find them companies. Lenders finance the purchases. Advisors structure the deals. Consultants show up afterward to help improve the business.
We've gotten really, really good at this.
What we haven't built to nearly the same degree is an ecosystem that asks whether the employees inside that company should be one of the potential buyers.
Take a hypothetical manufacturer here in West Michigan.
Maybe the founder started it thirty years ago. It now employs 200 people and makes $5 million of EBITDA. The founder is sixty-five and wants to retire.
The normal conversation is probably going to include a strategic buyer, private equity, maybe a family office.
It may never include the 200 people who spent a meaningful part of their careers helping turn that business into something worth buying.
That feels odd to me.
We tell people to act like owners all the time
This is probably the part I can't quite get past.
Businesses love ownership language.
Take ownership.
Think like an owner.
Treat the money like it's yours.
Care about the customer like you own the place.
I've probably said some version of all of those things myself.
But most of the time, we don't actually mean ownership.
What we mean is that we'd like employees to behave with the responsibility of owners while continuing to participate economically as employees.
I understand why.
Founders took the original risk. Investors supplied capital. Not everyone who works somewhere automatically deserves equity.
But there is still a pretty big gap between those two ideas.
A company might be built over twenty years by hundreds of people.
Salespeople win customers. Operators improve margins. Engineers create products. Managers build teams. People stick around through the ugly years when the company wasn't worth nearly what it is today.
Then one day the business sells.
The founder gets paid. Investors get paid. Senior executives may get paid.
For most of the company, Monday still looks a lot like Monday.
I'm not arguing that this is unfair. That's too easy.
I'm saying there may be a better way to think about it.
I've started thinking about the broader idea as collective equity.
Not collective ownership in some ideological sense. I'm still talking about private enterprise, competition, profit and capitalism.
I just mean creating more ways for the people building a company's value to actually participate in the value of the company.
An ESOP is one way of doing that.
Broad-based equity is another.
Profit sharing gets part of the way there.
I'm less attached to the mechanism than I am to the basic idea.
More people should have a chance to own a piece of the thing they spend their careers helping build.
This isn't an anti-private-equity argument
I don't want this to turn into one of those pieces where private equity becomes the villain.
That isn't my experience, and it also isn't very interesting.
There are businesses where PE is clearly the right answer.
Maybe the company needs capital to expand. Maybe there is a real consolidation opportunity. Maybe the founder wants maximum liquidity today. Maybe the business needs capabilities that simply don't exist internally.
A good private equity firm can be extremely helpful.
I'm also aware that employee ownership can go badly.
A bad business does not become a good business because everyone owns shares.
A dysfunctional management team does not suddenly become competent because there is an ESOP.
A highly leveraged transaction can create its own set of problems.
This isn't magic.
But neither is private equity.
That's part of what makes the comparison interesting to me.
We accept that a PE transaction will involve bankers, attorneys, debt, diligence, tax planning and months of work because there is a giant industry built to make that transaction feel normal.
Employee ownership sometimes gets dismissed as too complicated.
Maybe part of the reason it feels complicated is that we haven't built the same machinery around it.
The financial case may be stronger than people think
Employee ownership can get talked about in a way that feels a little soft.
People hear ESOP and start thinking about culture, engagement and employees feeling good about working there.
That's all fine.
But it's not the part I find most interesting.
I'm more interested in the economics.
There is evidence that employee-owned companies can perform very well. Research has connected employee ownership with better productivity, stronger retention and greater retirement wealth.
That makes intuitive sense to me, although probably not because everyone suddenly starts working twice as hard after getting some shares.
I think ownership changes someone's relationship with the business over time.
If you're thirty years old and you know that helping this company become meaningfully more valuable over the next twenty years could actually change what retirement looks like for you, that's different than simply collecting a salary.
But ownership by itself isn't enough.
You can tell somebody they're an owner, but if they have no idea how the business actually works, what drives profitability or what decisions create value, I'm not sure you've accomplished much.
The really interesting version is when ownership gets paired with a strong operating culture.
People understand the business.
They understand how money gets made.
They understand what destroys value and what creates it.
Now the incentives start to line up in a much more meaningful way.
There is another side to succession that doesn't get discussed enough
I've met enough business owners to know that selling isn't always purely a financial decision.
Obviously price matters.
Sometimes it matters more than anything else.
But plenty of founders also care about what happens to the company after they're gone.
They care about the employees who have been with them for twenty years.
They care whether the company stays in the community.
They care about the name on the building.
They care whether the culture gets gutted six months after closing.
Then they enter an M&A process where the conversation naturally starts revolving around enterprise value.
I understand why.
But if you've already made more money than you and your family are ever likely to spend, succession becomes a more interesting question.
What are you actually optimizing for?
Maybe it is maximum price.
Maybe it is legacy.
Maybe it is independence.
Maybe it is rewarding the people who helped you build the thing.
Maybe there is a structure that gets you several of those things at once.
I don't think enough founders ever get pushed to think about that.
Ownership is where wealth gets created
This is probably the bigger idea underneath all of this.
We talk endlessly about wages.
We talk a lot less about ownership.
But almost everyone who has created serious wealth understands the difference.
Income pays for your life.
Ownership changes your balance sheet.
A person can make a good salary for thirty years and still end up in a completely different financial position than somebody who owned an appreciating asset during the same period.
Businesses are appreciating assets.
So if we're serious about wanting more people to build wealth, it seems pretty obvious that we should spend more time thinking about how more people can become owners.
Not through some giant redistribution program after the value has already been created.
By letting more people participate while the value is being created.
There is something deeply capitalist about that to me.
Maybe the answer to too few people benefiting from capitalism is simply more people owning capital.
Maybe there should be a third exit
When founders think about succession, the menu usually feels pretty short.
Sell to a strategic buyer.
Sell to private equity.
Pass it to your family.
Keep running it.
Eventually shut it down.
I think employee ownership should be sitting much higher on that list.
Not because it is morally superior.
Although, depending on the deal, I might be willing to entertain the argument.
Not because private equity is bad.
And definitely not because every business should become employee owned.
It should be there because, for the right business, it might actually be a very good transaction.
The founder gets liquidity.
The company stays independent.
Employees accumulate an asset.
The community keeps the business.
And the people who create the next twenty years of enterprise value get to participate in some of that value themselves.
Private equity has spent the last several decades building an incredibly effective system for buying companies.
I don't think we need to tear that system down.
I just wonder what would happen if we got equally good at helping employees buy them.