Sometimes the Stars Align

April 30, 2024 – John Abrams

Trillium Architects

Elizabeth DiSalvo (above center), a passionate, effective leader and a fine architect, spent 19 years building Trillium Architects into an important Connecticut firm. Trillium specializes in high-performance residential work and is consistently busy and profitable. At 57, Elizabeth decided she wanted to plan for the future, convert her firm to a worker cooperative, work for another 10 years, and build a leadership team to succeed her during that time. Her dedicated group of employees was ready to engage.

She hired Abrams+Angell to help her. We formed a steering committee (consisting of Elizabeth and four of the company’s 12 employees) and enlisted an accounting firm (Whittlesey, Inc.) and an attorney (P.J. Delheury), both well-versed in co-ops. Together, this team began the process of making the necessary key decisions and building a buyout proposal.

Elizabeth had no idea what the company was worth, but she had a relatively good sense of what she hoped to gain to provide for her personal long-term financial security. It turned out, in this case, that the accountants’ valuation and Elizabeth’s needs were in sync. Elizabeth agreed to a $1,000,000 sale price to be paid as a 10-year note at 5% interest. The entire amount will be paid to her from company profits in annual principal and interest installments.

A 10-year earnings projection showed that the company will be able to fulfill that commitment, and a provision in the purchase agreement provides that Elizabeth will accept delayed payments in the event that one or more bad years make it tough for the company to pay. She also agreed to an employment contract that maintains her role as CEO (her title is actually CVO—chief vision officer) for that 10-year period and stipulates her salary (with bonuses if company performance exceeds predictions).

The Steering Committee decided on a buy-in fee and determined that all employees would be eligible to become owners after two years of employment. As we worked through the various decisions and documents, and as the group became convinced that this was truly going to happen, they became increasingly involved in understanding the finances, the risks, the potential rewards, the obligations, and the intense learning that would be necessary to make this a success. They crafted a new mission statement and guiding principles, a decision-making matrix, and new definitions of roles.

Employees can now purchase an ownership share of a thriving architectural practice for a very modest investment. Not only do they get the company, but they get Elizabeth too (for 10 years) to help assure company success and reduce their risk. This mid-career transition provides a long runway for building new leadership capacity. And Elizabeth gets a winning trifecta: the financial security she hoped for, a new level of commitment from the colleagues she has nurtured, and the joy of taking the company she loves to a new place as she approaches retirement.

On January 1, 2024, after 11 months of planning, the legal documents were completed and signed, and Trillium Architects LLC became Trillium Architects Cooperative, Inc. All five Steering Committee members who had worked diligently to address all issues took the ownership plunge. More are soon to come.

The new members became the Board of Directors, and, at their first meeting, we began to plan the educational steps we will take, over time, to build new leadership capacity and a healthy ownership culture. The meeting seemed easy and natural, because the same group had been meeting for nearly a year and learning to make important decisions together. Now, the group has embarked on a strategic planning exercise to envision and work toward the next iteration of Trillium.

At Trillium, all the stars aligned, by chance. Willing seller, willing buyers. A well-run profitable company where people enjoy their work. A founding owner with a collaborative bent, and for whom the valuation satisfied financial needs. A strong Steering Committee of committed employees.

Not all cooperative ownership conversions can conveniently be fully financed from company profits that pay off a note held by the founder. Not all cooperative ownership conversions have a founder willing to work another 10 years and a group of employees who embrace that arrangement.

But nothing is all peaches and cream; there have been hiccups and there will surely be more.

Converting ownership with a long runway to new leadership relieves the pressure and complexity that often accompanies late conversions, when the founder is on the verge of retirement. It’s not easy to address both ownership and leadership succession at once. Most founders don't think about succession in the prime of their career. They should. And more leaders, like Elizabeth, are beginning to understand this. The benefits can be tremendous.

If you have a business, now is the time for you to begin to plan for ownership succession, no matter the age and maturity level of your company.

You’ll be glad you did.