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Rethinking Succession in the Middle Market: The ESOP Journey of Drake Cooper
166 Plays8 days ago
What happens when a company decides its next chapter should belong to its employees? In this episode, Doug Farren sits down with John Drake, president at advertising agency Drake Cooper, to explore the agency’s transition to a 100% employee-owned ESOP. They discuss continuity, talent attraction, employee engagement, and why employee ownership can create stronger alignment between culture, performance, and long-term growth.
To learn more about Drake Cooper, visit their website: https://drakecooper.com
To read NCMM's case study on Drake Cooper's ESOP journey, visit: https://www.middlemarketcenter.org/case-studies/drake-cooper
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Transcript
Introduction to 'The Market That Moves America'
00:00:02
Speaker
Welcome to the Market that Moves America, a podcast from the National Center for the Middle Market. The center is the leading source of knowledge, leadership and innovative research on the middle market economy. Throughout our podcast, we will feature middle market leaders and stakeholders to hear their real world perspectives on trends and emerging issues.
00:00:24
Speaker
Welcome to the Market That Moves
Doug Farron on Middle Market Issues
00:00:26
Speaker
America. My name is Doug Farron, Executive Director of the National Center for the Middle Market, located at The Ohio State University Fisher College of Business. Very excited about today's episode, where we're going to be talking about issues of relevance for the middle market, which is around succession planning, leadership turnover, change. It's something that we see is going to be very prominent in the in the coming years.
John Drake on Unique Ownership and ESOP
00:00:53
Speaker
And so joining me today is John Drake. John is the president at Drake Cooper, an advertising agency with a very unique story about their own ownership and succession.
00:01:04
Speaker
ah Drake Cooper has been a big partner with the center in terms of a case study that we did did with them recently. ah They were a member of ours when we had our membership program. And so really excited about this conversation and diving in a little bit deeper on their decision to do an ESOP or employee stock option program and what that has meant for their business. So John, welcome and thanks for being on the episode today.
00:01:32
Speaker
Thanks, Doug. I love what you and the center do and ah grateful to be here. Thanks. So can you start by just sharing a little bit about Drake Cooper and then your own journey and and kind of tell us a little bit about that story?
Drake Cooper's Creative Commerce Focus
00:01:46
Speaker
drak Sure. Drake Cooper is an advertising agency. So ah what we exist in a world where clients decide that they want to bring in a partner for some or all of their advertising. And that is us, what you might typically assume would be um writing and producing advertising. We're also buying media. We're doing a lot of brand strategy work. We do a lot of digital work, websites and digital environments for teams, as well as something called MarTech.
00:02:15
Speaker
um and a lot of analytics. So we're an advertising agency that services clients predominantly in the West, but also nationally and beyond. And ah my journey is this is all that I have ever done. I've done this for 30 years now, working in advertising agencies.
00:02:33
Speaker
And um I could give a little bit, of probably some context about how the company got to where it is, but wanted to stop there and see if you had any questions on that. Yeah, how long have you been in business? How long has Drake Cooper been in business?
00:02:46
Speaker
Since 1978. And I always have to identify when people do the math, I did not start the agency when I was four.
Ownership Changes and ESOP Transition
00:02:54
Speaker
So the way that this worked was my father started the agency. and our journey was, i i did the first half of my career at National Advertising Agency, then came back and joined Drake Cooper 2007.
00:03:10
Speaker
okay The journey of the company will probably be familiar to some listeners. ah Started as ah as a private company owned by one person as a S Corp.
00:03:21
Speaker
And over the course of time in the 80s, the company merged with another larger company out of Seattle for a little while. um After a little bit of that, it was the ownership was bought back ah by my father to be again um singularly owned. And then he brought aboard ah a partner in Cooper and that's where the Cooper name came from. okay um Then my father retired, Jamie took it.
00:03:49
Speaker
And then from that it became, okay, what's the succession plan there? And then it went into the ESOP that we're going to talk about today. So a very familiar journey, probably to other companies where like you're growing, you do a little bit of a merger. Maybe that doesn't work. You bring it back. It's shifts a little bit, but then it that you're based at a, decision what do you do so we win each other Yeah, I completely agree. I mean, that's going to probably resonate with a lot of our listeners. But one thing that may not resonate with them because we have such a diverse audience is just what it's like to be in an agency. And it sounds like I mean, you have obviously lots of experience with that. So you could kind of describe for a little just, you know, briefly describe what that work environment is like and you know what it's like to be in a creatively driven business like an ad agency.
00:04:39
Speaker
It's unique because we work in an area that that I call creative commerce. And what that means is we're we're creative at our core. Art is central to what we do and fostering a huge creative environment where imagination is welcome and and and that is is important. But yet it's still commerce. We're still on the business side of things. We're not just doing art for art's sake.
00:05:03
Speaker
So creative commerce, we live in a world where clients come to us and say, here are our business goals. We believe that we need to have a strong message and something interesting in order for us to achieve our goals. So we create ad campaigns, brand platforms for them in collaboration with them.
00:05:19
Speaker
um And things to us that are very important and real are deadlines. budgets, ah making sure that our message is connecting with the right audiences, measuring if that works. So it's creative on one side, but it's still commerce. And so the world we live in every day is that, and we do it for a wide range of clients. We work in multiple industries, which is what makes it fun because, and what creative people often need because they're thinking about one industry in the morning, a second industry in the middle of the day, and then a third entirely different industry at the end of the day.
00:05:55
Speaker
And it's it's wonderful for creative people to work in that environment and and to work with wonderful clients and and we're collaborative. um Clients have great creative ideas. So we're always putting things together. It's like, oh, that's really great. Let's do that, vice versa.
00:06:09
Speaker
So it's a great way to have a career. I've i've very much loved it. Yeah, sounds like it. So let's get right to
Choosing an ESOP: Exploration and Rationale
00:06:16
Speaker
the topic. and And one of the reasons I was so excited about having this conversation with you is that you're going to tell us a bit about the approach ah of of an ESOP, which in our experience at the center, you know, almost 15 years now, not very common for many middle market businesses that we've come across. So I'd like to dive a little bit into, you know, if you could give us a little bit of background about that, because you mentioned, you know, the need to approach succession
00:06:43
Speaker
in general and then kind of, you know, what were the things that you considered as you were forced away the different options at hand and and eventually how you landed on ESOP as the but best approach for you?
00:06:55
Speaker
Yes, you you come. All companies come to the decision of what happens next. Time goes on. Age happens. You reach that point. When you reach that point, there are several obvious doors that get talked about a lot.
00:07:11
Speaker
Do you bring in somebody else to run the company for you? you know do Do you make an arrangement for that? Do you merge with another company? um Do you completely sell altogether?
00:07:24
Speaker
um And all those decisions right there, those are extremely complex. And you take a lot of evaluation, both for the people that are involved and what could happen to employees, all all of those things. um None of those are easy.
00:07:40
Speaker
The other option that that it's a very small portion of the US economy that are employee owned is to do ESOP route. And in that model, you basically just turn the company and put it in the hands of employees and you create your own stock plan for it.
00:07:59
Speaker
And that is an option that can work for a lot of companies um in the structure that they're doing. And one of the things with that choice is by, we'll talk about on this call a couple things, by nature of what it isn't defines a little bit what it is. and And the first part of that that is helpful to think about is all those first options I mentioned when you come to that moment in time or journey, all of those by definition are pretty much fairly radical change.
00:08:34
Speaker
Like you're, if somebody else is going to take control of your company, they're going to have plans. If you're going to merge with a larger company, there's gonna be things, like you know if they take ownership of it, there's gonna be things there. when you When you do the employee route, you're you're making a choice to say, what we've got going here, we really like. We've got ideas for how we go to the future, but we really like what's happening here. So let's just put it in the hands of the people that are doing it and build that way.
00:08:59
Speaker
So it's a little bit more of the continuation of what you're doing with new ideas and with ways to bring it forward and using the ESOP in a positive way. But of all those choices, it's one where it's like I can see how the company can be in the next several years. And you may not have that with the other options.
00:09:17
Speaker
Right. So, John, i question for you. Who was at the table during this evaluation and decision making process? we're Did you do this alone?
00:09:27
Speaker
Did you have... Advisors, like I'm just curious as to how that process actually takes place, because it sounds like you did consider some of these other options and then ultimately i landed on the ESOP. But I'd be curious to know, like who is involved in those discussions?
Jamie Cooper's Role in ESOP Implementation
00:09:45
Speaker
Well, Jamie was the Jamie Cooper. The Cooper was the the one who was who was in charge and and doing discussions. um And so it was really, you know, it's him and then evaluating with the ESOP community. There's there's certain, um it's it's a federal legal program, so you have to get other organizations involved. But it really is just going through like, yeah, I think this is the right decision. You you learn about it. You go to the ESOP conferences. There are companies that just specialize in managing ESOPs that you work with to set up the plan appropriately.
00:10:21
Speaker
according to all laws and the galleys. And so you just start the process, but it it it really is, you just you just start learning about it and you think, does this work for me and the company?
00:10:33
Speaker
And then, you know, yes, you just go. i mean, just do it. I mean, as simple as that sounds. you Yeah. just yeah And was was business continuity the number one factor? It sounds like it was. But were there other things that you considered along the way?
00:10:47
Speaker
It was a large factor of it. it It's we we really um the culture of the company is important. So when when we're looking at it for us, it's like having having a culture that is further built upon by having employee ownership just made a lot of sense for our ethos and who we are.
00:11:06
Speaker
Yeah. Yep. Were there any um moments in time where you maybe started to have second thoughts or so maybe said, hey, maybe we won't go an ESOP route? did that ever Did that ever happen along the journey?
00:11:20
Speaker
It's a great question. And it didn't. It was one of those things where as you go and you learn more, as something is revealed to you, it just kind of kept becoming stronger and stronger.
00:11:32
Speaker
So it was one of those things where like there wasn't a point where we're like, oh, that's not going to work. And we really need to think about that. No, just as we learn more, as everybody involved learn more, just kind of like, yeah, this does continue to feel like the thing we should do.
00:11:45
Speaker
Yeah. and And now that you have maybe the benefit of of time and can reflect back, were there any maybe unforeseen benefits and or drawbacks or disadvantages that maybe you didn't consider or didn't anticipate while the decision was being made? I'd be curious to hear that.
00:12:04
Speaker
it's It's interesting because you think um you think that the fact that you are, okay, we are now, and we're 100% employee owned. Sometimes companies don't don't go 100%. We're 100% employee-owned.
00:12:16
Speaker
And you think that you you roll that out. And like in our business, we we work with clients. And you think that it's going to be like, oh, we're employee-owned. And isn't that amazing? And um one of the things we have learned is that is that there are some benefits to that. But mostly, ah clients and customers still just want you to be great for them.
00:12:36
Speaker
and And it's like, yeah, it's great. You're employee on this wonderful, but let's make sure that we've got everything that's you know right and still performing. So we we thought it might be a little bit more like, ooh, tell us about that. We haven't seen that as much. um One of the things that we have seen is it's a great way to I mentioned a few moments ago, it's like it's what it's not.
00:12:56
Speaker
you know When you're employee-owned, you are all truly in it together and you all know that. So you all you know lean in and push together. and and And one of the benefits that we have is like clients can know, at least with our company,
00:13:09
Speaker
the people that are working on their account, they're part owners in a company. So they're gonna wanna make the right choices. They're not doing it for somebody else who owns it. And that comes out in all sorts of great ways when you've got customers and clients.
00:13:21
Speaker
Sure. And those are the two areas I kinda wanna focus in on next. I mean, the first letter in the ESOP are employees. So let's talk about them because obviously this is a big, big impact for them. So how did how did they react when this was the first announced? I believe in 2020, this rolled out, correct?
Employee Reaction to 100% Ownership
00:13:39
Speaker
Correct. What an interesting time. What was the initial reaction? And then have you seen like an evolution over time? In addition to what you just mentioned about how they may approach clients and projects, but tell tell us about that experience.
00:13:55
Speaker
Okay, so the rollout, let's go. um So the rollout was great. ah it It is a really nice moment for employees to know because they know change is coming. They know that time progresses and you have to do stuff and you and you communicate with them as you go. But when when the news comes out that we're employee-owned, everybody was extremely positive because it's a very neat thing.
00:14:16
Speaker
Like you're now getting stock and here's what that is. And and um it is change, but it is not a huge change in terms of like how it would affect everybody's day-to-day. That rollout was great. And as an advertising agency, we just can't help but make um make it be ah creatively interesting. So we we made ah wearables. we made um ah We had a whole design system announcing that we're employee-owned that was just to employees. So we we treated it like that. That's just in our ethos. That's how we do it.
00:14:50
Speaker
So that was all extremely positive. Now you mentioned the year. So this was 2020. So this was during the pandemic. So everybody is remote. So we had to, as we did this, it was all done remote. And so one of the things that we did is we we packaged up a box and sent it to every employee so they would open it.
00:15:10
Speaker
And then we had a time so everybody would do it in similar times. And that that was a neat, neat moment. So we used, even though we were remote in this environment as we made the transition,
00:15:22
Speaker
We really put a lot of thought into how we make it so that it feels special and and all of that. and and yeah And the team did an amazing job with the design identity for it. it's We still refer back to it to this day. It's part of our brand.
00:15:34
Speaker
How many employees at the time? At the time, we were around, i I'm going to say 40. 40, okay. And we've since doubled since then.
00:15:46
Speaker
Doubled, okay.
Post-ESOP Growth and Talent Attraction
00:15:48
Speaker
We've grown a lot. We've um had had so had some success, so it's been great. So has the ESOP, have there been other tangible impacts of this when you think about retaining people, attracting new, I mean, it sounds like you've grown tremendously. So has that played a role in your ability to attract new talent?
00:16:08
Speaker
It has. it's it's um It's the signal that it sends. the The signal that it sends if you're employee ownership, it is different than a lot of companies.
00:16:19
Speaker
So if you're evaluating a ah company for new for your lifestyle, it's it's a signal that says, well, I'm just meeting this company for the first time. Or even if I've followed them for a while and wanted to work there, I still don't know a ton about it. Even if I know somebody there, a couple of people there, I still don't know a ton. But being employee owned is a signal.
00:16:37
Speaker
that says, i can pretty much bet that the way the company is run puts employees and my experience as something that's important. And that matters to me when I'm making a choice of where I'm going to work.
00:16:51
Speaker
So it has it it has it is positive there for sure. And we try to live up to that ah in everything once people join. how about any other things that you've observed? Like, I'm just thinking of things like how people communicate with one another or has it fostered more collaboration? I mean, that have may have already been part of your culture, but have you seen that shift at all?
00:17:14
Speaker
But it makes sure that we are really communicating well and involving people in in the business. So we're going through a values exercise right now where, of course, we've got a set of values that define our company. All good companies do or should have that. And they should be re-evaluated. So right now we're in that process. And a huge part of the process was involving the agency and ah through what the value should be. And we do that because we're one of the reasons we do that is because we're employee owned. So we really want their involvement. So they're they're part of the process. And I don't know all companies would would do that or be able to do that with scale.
00:17:50
Speaker
But we we do. Right. Yeah. sort of And values as as and that's so important to us because. Like in somebody in my role at the stage of my career, there's a lot of meetings I'm not in.
00:18:04
Speaker
And so the meetings that I'm not in where where stuff are stuff is happening, the only way that that we know that things are working as they should is are people working according to the values? So values really help set our tone of how do we create the culture and the impact and the work level that we need. So employee on get employees involved in the values, create the values. it helps run the company when at all forms, regardless of who's in the room.
00:18:29
Speaker
Yeah. Yeah. So clearly a lot of things shifting with the employees. Let's talk about the other side of the equation, your clients. What is, how does it change like this, ah impact their experience working with you? Or does it even, i mean, tell us like, how how does it matter to them?
00:18:48
Speaker
it It matters that, that we perform. That's what matters is are we doing great work or are we not? Are we making their lives better or are we not? Are we helping them achieve their goals or are we not?
00:19:00
Speaker
And employee ownership helps um where everybody is is in it because they're part owners of the company. They want it to be great. We're very supportive of each other. We all work hard. um And that creates a nice culture of that versus this is owned by a couple of people or what have you. It's like we're all, if we all do well, then we all do well. So that's that's good. And that comes out just in all forms of working with clients and customers.
Client Perception of Employee Ownership
00:19:28
Speaker
like um just polished all around, which which is great. um They don't, um sometimes there's questions about like what that's like, you know, they're interested in it, but mostly they just they just want that.
00:19:42
Speaker
yeah So yeah, but it also seems like this company that we're hiring is employee owned. We're making a choice to hire a company where, you know, we don't know all that goes on in any of the partners that we have our companies, but this one is owned by all the employees. And that's probably a good signal that that things are being run in a manner that is fair and great for employees.
00:20:04
Speaker
Yeah. You mentioned kind of all the collateral and things you did to roll this out internally. Did you do anything similar externally? Did you like share this intentionally with all your clients? Did you have to make any phone calls? Did you have to have conversations that maybe you weren't anticipating?
00:20:21
Speaker
Yes, you do. ah You have to. We were we were outward about it. We had we had it on our website. We had some press around it. especially here in our local headquarters community. And yes, you do. When you do make moves like that, you do want to make sure that your clients are informed of what's going on so that when they're not surprised and two, they understand like what this means for them and what it doesn't. So yes, we do. And those are like, yeah, you, you want to do that in different personal phone calls or however. So you do let them know for sure.
00:20:55
Speaker
Yeah. ah but Yeah. Sounds, sounds pretty clear. yeah, This is, I mean, we could keep going on forever. I'm so interested in this topic, but just to kind of close the conversation, again, lot of middle market companies listening perhaps.
00:21:11
Speaker
And we know that... There could be upwards of a third of middle market companies thinking about some type of leadership or ownership transition in the next two
Advice on ESOPs for Middle Market Companies
00:21:21
Speaker
to three years. So if you were to offer some advice or wisdom from your experience with those leaders, what what would you want to share?
00:21:30
Speaker
um Well, first of all, ah it we One of the things that I i haven't mentioned here is like ESOP is a stock plan. So companies get everybody in the in the company gets a stock plan for the company, which is in addition to a 401k or anything like that.
00:21:47
Speaker
And that's really great for people. Um, that that's a, that's a great financial thing for, for people to have in addition to all the stuff that they're doing. And it's actually a stock that they have a little bit of control. And we, as people who have 401ks, it's like, you don't really, you're picking your things, but you can't, you don't really have that much control. Uh, that's the ESOP plan is one that you do. The, the thing that I would share as people are considering this is, um,
00:22:15
Speaker
a reflection on the type of company that you are today and the type of company that you want to become. And if if that conversation with yourself and the leadership team is one of We like where we are today.
00:22:32
Speaker
We need to grow. We need to have a plan. We need to do a few of these things. We've got some ambitious goals, things with that, of course. But if if the conversation with yourself is like, I really like what we've got and we just need to keep doing this and better, ESOP might be a really good one for you because you can you can see the path. you've You've got a little bit more control of your path and yet you still go over the go through the gates of where need to transition.
00:22:59
Speaker
So if that's what's on somebody's mind, I'd encourage them to look at it and and give it it give it a look. Well, very very wonderful and pointed advice and really appreciate again your time and having this discussion on a topic that I think will be really interesting to a lot of people. So again, John, thanks for for for being on the podcast.
00:23:24
Speaker
Thanks, Doug. Great to see you. Nice to be on. um hope but Hope it's beneficial. So for more information about Drake Cooper, you can visit their website, which is drakecooper.com.
00:23:35
Speaker
I would also encourage you, if you want to read more about this story, we do have the case write-up on the ESOP process at the center's website, which is middlemarketcenter.org.
00:23:48
Speaker
And again, just want to thank John for his time and look forward to talking to you again soon. Thanks.
00:23:56
Speaker
Thank you for listening to The Market That Moves America. Never miss a new episode by subscribing anywhere podcasts can be found. You can also subscribe to our email newsletter at middlemarketcenter.org.