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Shared ownership

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As Roger Jacobi planned for retirement, he set up an ESOP to ensure his company would be left in good hands.

Lee Chilcote | June 30, 2011

Roger Jacobi founded AgriLawn, a lawn and pest management company in Oklahoma City, after being squeezed out of his first lawn care job in the mid 1980s.

“I worked at Green Keeper in Dallas, Texas for four years, which was a family-oriented company run by wonderful folks,” Jacobi says. “I’d just graduated from college, and within four years they promoted me to a management level position.”
When the owners of Green Keeper sold the regional company to a national chain, however, Jacobi soon found himself without a job. “The national company that bought Green Keeper had their own managers in place to run things,” he says. Jacobi

It was a turning point in the life of the young entrepreneur. “I became determined to start something on my own, and it forced my hand in that direction.” 

So Jacobi moved back to Oklahoma City, and at the age of 28 he founded AgriLawn. From his humble, one-man-and-his-truck beginnings, he grew AgriLawn into a successful company with 32 employees, $3.5 million in revenue, a fleet of 25 vehicles and a new state-of-the-art facility.

“Getting laid off was the best thing that ever happened to me,” he says with a chuckle.

Yet Jacobi’s early experiences in the industry also taught him nothing good lasts forever. When he and his wife began planning their retirement five years ago, they didn’t want to sell to a national chain. They’d worked hard – too hard, in fact, not to be able to cash in on the company’s continually escalating value. Moreover, they’d created an “ownership culture” among employees and wanted to see them treated well.

“My wife and I were rocking and rolling, putting in 70 hours week in and week out, and then we got to thinking, ‘What are we going to do long-term?’” Jacobi recalls. “That’s when we started exploring alternatives to selling the company.”

Today, AgriLawn is an employee-owned company with an Employee Stock Ownership Plan or ESOP. According to the ESOP Association’s website, an ESOP is defined as “an employee benefit plan which makes the employees of a company the owners of stock in that company.” In the case of AgriLawn, employees attain shares of the company based on their years of service and compensation level.

“Creating the ESOP was a way for us to take gradual steps towards retirement while staying committed to our customers,” Jacobi says. “Our employees see the stock price go up each year and know they’ll receive that at some point in their career.”

Here’s how the ESOP works. Company shares are cased on an annual valuation of the company’s worth by an independent appraiser. Over a period of time, these shares are placed into a trust managed by an independent trustee. The shares are distributed to eligible employees (they must be at least 21 years old and contribute 1,000 hours of service annually).

An employee that works for AgriLawn for two years becomes “vested” and owns 20 percent of their shares. After six years, company employees are fully vested and own 100 percent of their shares. When employees leave, they cash out their shares and take the money with them.

So for example, a mid-level manager who has worked at AgriLawn for six years would have shares worth about $35,000-$40,000, at this time, Jacobi says. “As the years go by, they will receive additional shares each year, and if the company continues to perform well, the value of the shares will increase.”

The ESOP isn’t just for employees, however – it offers a myriad of benefits to Jacobi and his wife, too. “As owners, we carry a 15 year note for the value of shares that we’ve contributed to the trust,” he says. “The note is paid down each year with the company’s income. As a result, we’ve been able to step back over time while earning income.

“Sure, creating an ESOP is riskier than selling to a national company, but it fits our style better,” he adds. “It may work out better for us over time because we’re growing.”

Although Jacobi has always worked diligently to instill an “ownership culture” in his employees – after all, taking pride in quality workmanship and customer service is one of the things that drew him to the lawn and landscape industry in the first place – he is gratified to see his employees treating the company as their own.

“It’s neat to see employees buying into it,” he says. “Because their performance has a direct impact on the share price, they have more of a stake in the outcome.”

AgriLawn employees also have good reason for optimism. The last time the company was valued (in 2008) the share price increased 12 percent in just one year. Jacobi, who will receive the 2009 valuation this month, anticipates a similar increase this time.

“That’s a pretty good return compared to the stock market,” he says.

ESOP’s are viable options for lawn and landscape company owners that are seeking to retire or wind down and don’t want to sell immediately, Jacobi says. “Because lawn care is a personal service type of industry, it lends itself well to employee ownership,” he says. “Employees are more likely to take ownership over serving customers.”

Despite the ESOP’s success, Jacobi attributes AgriLawn’s growth and success to hard work and service as much as employee ownership. The ESOP has helped his company to grow, but it’s based upon a larger company culture. “It’s not a magic bullet,” he says. “If you don’t have an ownership culture in the first place, an ESOP won’t help you.”

Owners seeking to create an ESOP should have a thoughtful communications strategy in place, Jacobi says. “There was a lot of excitement when we announced it, but people still didn’t really understand it,” he says. “Yeah, you’re an owner, but there are still systems in place to help the company function and run smoothly. Of course we always ask for ideas, but managers are still responsible for making decisions.”

For Jacobi, gradually transferring company ownership to his employees has brought him full circle. As he steps away from the company he created, he’s still imparting lessons he learned while working for Green Keeper fresh out of college.

“Even with employee ownership, you stress the usual lessons – ‘work efficiently, share ideas, keep a long-term focus and be a mentor to others,’” says Jacobi. “The difference is that people realize those things have a direct impact on share price.”

 

This story is one of three that appeared in Lawn & Landscape’s Growing Green e-newsletter. To continue reading about AgriLawn:

Generating business:
Offering online lawn care tips provides a resource for current and future customers.

Employee commitment:
AgriLawn’s success is a result of good hiring and staff development.

 

 

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