The Worker Co-Op Solution

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Podcast Transcript

Loren Feldman:
Welcome, Shawn and Cameron. It’s great to have you both here. Cameron, as Shawn may have told you, we’ve been on something of a journey the last year or two, looking at different ownership models and succession plans, which is why we were really eager to speak with you. But first, tell us a little bit about PixelSpoke. How did you get started? What do you guys do?

Cameron Madill:
Yeah, well, first of all, thank you for having me. PixelSpoke is basically a social-impact-driven website firm that focuses on building websites for credit unions. So we have a very kind of niche focus there, and that’s what we do. It’s pretty short and sweet.

Loren Feldman:
Why credit unions?

Cameron Madill:
Well, of course, there’s sort of the polished answer, and then there’s the opportunistic answer. And there’s some truth to both of them.

Loren Feldman:
We’ll take both.

Cameron Madill:
The opportunistic one is, we were kind of a business in search of a business model. I think we were a moderately successful, but relatively undifferentiated business, and that whole kind of jack of all trades, master of none thing very much applied to us. And I think I kind of just got tired of saying, “We’ve got such great people”—kind of a version of, “We try harder.” And the longer I was in business, I just felt: This is not a good strategy. It’s not cute anymore to be trying to be all things to too many people.

And so I was really struck by something—I say this lovingly—an old, crusty agency owner told me, which was that, “If you’re not differentiated, if you’re not focusing on a niche, you’re really not adding value. You’re just kind of lying to yourself.” And that, when you really create a focus on some kind of client type, 80 percent of the work will be the same, but that 20 percent that comes from that deep expertise in this niche is what’s going to allow you to really add a lot of value. And it might seem a little less exciting at first, but that’s really how you’re going to make a difference in the world. Versus just having every client be new and convincing yourself, because you’re teaching yourself about that client that you’re really adding value, when you’re doing that, really what should be basic research.

So that was the background. I was looking for some kind of niche or some kind of focus that I felt like could really be a stronger, more stable, defensible business model, kind of from the head-centered stuff. From a heart-centered focus, we had stumbled on to having a few credit union clients from me being on the board of a credit union back in the early 2010s. They had ended up turning into a client a couple years after I left the board. We picked up a few more and just realized, they’re really just these incredible unsung heroes in the world of finance, which is a world that mostly gets a bad rap, but also is critically important.

Loren Feldman:
Are there enough credit unions to make it work for you?

Cameron Madill:
Yeah, there are. There are about 5,000 credit unions. There are still credit unions where there’s literally one or two employees, where they are sort of like super small businesses. So certainly not all of them are prospective clients. But I’m sure at least 500 to 1,000 of them are. And we only take on four to six new clients a year, sometimes three to six. And I think our total client roster is in the low to mid-30s. So, yeah, I think that’s plenty of space for us. It’s not like we have to be the big dog in this industry, where we lock up all the credit unions.

Loren Feldman:
Are there other agencies that specialize in credit unions? Do you have competition doing something similar?

Cameron Madill:
Yeah, we definitely have competition. You know, with 5,000 credit unions, they’ve all got a website from somewhere. And there’s everything from firms that specialize in stamping out websites and literally do hundreds of redesigns a year to firms that do more in the tens or dozens. I do think we might be one of the single lowest volume shops in the entire industry, which I think is a good place to be, because I think there are a few that do similar complexity and size websites to us, but they are often trying to take on much higher volume than we are. And we’re really committed to this idea of sustainable growth—a version, if you heard Jim Collins’ story of the 20-mile march, which I think Shawn hates. But you know, whatever. He’ll get over it. [Laughter]

Shawn Busse:
I loved it. And now I’m questioning it. How about that?

Cameron Madill:
Well, you know, this podcast is about me, not you. [Laughter] No, it’s a version of dull, basically just sort of keep making consistent progress. And don’t get greedy when things get easy, and don’t get complacent when things get hard. So we really have landed on this: We try to target 10-percent growth a year.

Loren Feldman:
That’s not insubstantial.

Cameron Madill:
No, it’s not. But we try to always hit that. That’s the thing, right? And we also don’t say, “Ooh, we can get 20 or 30 this year.” We just say, “Nope!” Time to slow things down and focus on client delivery and internal things, if sales have gotten easier in this moment. Or if things have gotten really hard, what do we need to do to make sure we still make that 20-mile march?

Loren Feldman:
Can you give us a sense of how big the company is?

Cameron Madill:
Yeah, so we have 17 people, and we’ll do probably a little bit over $2.5 million in revenue this year.

Shawn Busse:
Will you hit the 10 percent growth that you were trying to achieve?

Cameron Madill:
Yeah.

Shawn Busse:
Cool. What are the headwinds in the business these days?

Cameron Madill:
Let’s see, so industry-wide, the credit union industry, the financial services industry—and I’m sure everyone listening knows this—it used to be that with deposits, you just couldn’t do anything to get any kind of return on your deposits. So you could be like, “Hey, I’ve got a quarter of a million dollars, I’d like to put it in your bank or credit union.” They would say, “Great, we will pay you .001 percent.” And that has totally shifted with inflation. So right now, credit unions, just like community banks, just like mega banks, are just absolutely in a battle to get more deposits. And so kind of the whole rules of the game are changing.

I also think, as a version of the 20-mile march, money just flooded into digital during COVID, right? I mean, it’s pretty obvious if you can’t even have your branches open, where do you invest your money as a credit union? You invest it in your website and digital marketing, digital banking, etc. And so I think there’s been a bit that was like this big tide coming in. And now the water is receding. We’re still seeing a lot of interest. But I just think from a sales standpoint, the demand honestly got pretty overwhelming for a couple of years. And now we’re adjusting to being out there and really having to strengthen our own personal marketing and sales muscles in a way we haven’t had to since probably 2019.

Shawn Busse:
In terms of your marketing strategies and getting in front of customers, where are you at today? And how has that changed?

Cameron Madill:
The biggest thing that’s changed is we are actively seeking prospects. With only three to six new clients a year—actually, I should say three to six new redesigns a year. So if we get two or three existing clients to build redesigns, we get a couple really top-notch referrals from referral partners. We might have literally zero-percent capacity. And that was the case. We had a point in 2021 where we had to tell people, “We’re really sorry. We literally cannot work with you, even if you’re willing to wait 12 months, because we just don’t know when we’ll have capacity.”

I’d never had to deal with that before. And it sounds like kind of a fun problem to have, but it really kind of sucked. Because we had people coming to us who were referred by a client or a partner, and they were kind of pissed. You expect if someone has a going concern of a business, they’re going to at least be interested in the idea of working with you.

Loren Feldman:
Cameron, what stopped you from hiring people or doing whatever you would have had to do to be able to take on those clients?

Cameron Madill:
That’s that 20-mile march, right? It’s like, “Okay, we’re gonna hit our growth target. We’re gonna hit our profitability target.” And so we don’t want to overgrow and have a degree of breakdown that results in problems one, two, three years in the future because we got a little too greedy.

Shawn Busse:
Yeah, I’m curious, the firms that really took on that work in the heyday times, I’m guessing they’re probably laying people off right now.

Cameron Madill:
Yeah, I mean, I don’t know what’s going on inside some of our competitors that we pay reasonable attention to, but it’s clear that—and we’re not immune to this by any stretch—some of them have had some real pains from just taking on more than they could handle. And I don’t know if that’s resulted in layoffs, or maybe it’s just been harder to retain people in general. And so there’s a kind of churn happening.

But back to the marketing question, I just want to say, Captain Obvious: We’re going back to conferences. We’ve done a lot of that over the last year and a half. That’s really been beneficial for us. And then, we’re very much a purpose- and impact-driven company. I always love that notion that profit is not the purpose of business, any more than air is the purpose of life. But it is a necessary precondition to survival. So, we obviously very much have that need to be successful financially to do anything else. But purpose matters a lot to us.

And as a certified B Corp, I think one of the shadow sides of that, and having so much business opportunity coming our way, was I think our marketing got a little too focused on impact. It’s one of the things that differentiates us from our competitors, but at the end of the day, we need to be the credit union marketer’s best friend—not the chief impact officer’s best friend. We’d like to do both. And we want to strike that balance, but I think maybe we went a little bit too far on the impact side. And so we’ve been trying to really focus on generating high-quality content and presentations and podcasts and everything else that is at least 50 percent going to be super high-value, practical, applicable content for a credit union marketer, so that that natural linkage is made when you start thinking about a website backed by PixelSpoke.

Loren Feldman:
So, when did you start thinking about your ownership model? What triggered that?

Cameron Madill:
I started thinking about it relatively early in my career when I started getting into some marketing agency groups, and I started meeting different marketing agency owners. I don’t really watch movies very much, but it was one of those movies where it’s like you’re in the multiverse, or whatever. And it was kind of like: Here’s all these folks—I’m in my early to mid-30s—men and women in their 50s and 60s, who own agencies and kind of being like, “Do I want to be this person? What would that be like? Do I want to be that person?” And I started just seeing a lot of folks who, what they would say, was that they were kind of trapped.

They had an agency that supported a good lifestyle. Maybe they had their name on the company. There’s a kind of ego and prestige in being an owner/CEO of your own company. But for a lot of them, it just felt kind of like the heart and soul and passion that they had for their work had left the building long ago, and they were just kind of hanging on, for lack of a better option. And so, I think I started just sort of thinking about myself in my 50s. I love this analogy from an event I was at last week: Have you guys ever been to a party, where you’re having a good time? It’s loud. There’s drinking. It’s fun. And then someone turns the lights on. You look around, and it’s just like: Holy crap! Someone’s throwing up in the corner. Someone’s sleeping on the couch. And there’s just garbage everywhere.

So the whole idea is, we all exit our business at some point. And the only question is: Do we do it willingly, feet first? Or do we get tossed out headfirst? And so just thinking about beginning with the end in mind, what’s that going to look like for me at PixelSpoke? And then I started looking at folks who sold their companies and all the various different configurations that can take, and nothing really resonated for me.

So I just felt I knew the end was coming. I didn’t want to wait to do this until I was in my 60s. And so it’s like, what’s a way I can do this that feels like it would be in integrity with all the stakeholders—including my own personal needs, but also our clients, our employees, the people who are a part of our impact work? And so that was really what I was starting to look for in 2016-2017, when I stumbled across the worker co-op.

Loren Feldman:
And when you say you were looking for it, was this a kind of an organized search where you were deliberately seeking out people to talk to about their experiences? Or was it more just when it occurred to you, you gave it some thought?

Cameron Madill:
I can say with clarity it was absolutely not an organized search. It was just kind of an intuitive thing. You know, there wasn’t really a hurry either. I mean, I liked what I did. I love our team. I really love our clients. I think what it was is that I’d seen too many owners who got to a point of just hating their companies or being desperate. And then they just did what desperate people do. They just kind of found the first possible escape route. I just didn’t want that to happen.

Loren Feldman:
As you were exploring these options, what was the first thing that you started to think might be the right approach for you?

Cameron Madill:
I wrote this all down somewhere, but it’s kind of common sense, right? You can find some kind of merger to a friendly. You’ve got these big conglomerates that roll up marketing agencies. You can try to be a strategic acquisition. That probably would have been the best way for me to maximize the sale price in our space: selling to an online banking company or some kind of big fintech.

There’s also the option to sell to a few key internal people, the kind of golden handcuffs thing. And none of those resonated with me. None of them felt right. None of them felt like they had a really strong chance of really preserving our purpose and culture and values and the value that we deliver to our clients. And so, when I stumbled across the worker co-op model, it just felt right in every way. Then we did a very detailed kind of discovery process. But every step along the way, it just sort of confirmed: Yeah, this will have challenges like anything, but this is the right path for us.

Shawn Busse:
I imagine you stumbled on to ESOPs at some point. Did you look into that? And if so, what was your assessment there?

Cameron Madill:
Yeah, you know what’s funny? I had heard a lot about them. And we’ve been open-book management since 2007, or something like that, maybe 2008. That was a fun time to start that, as you can imagine. [Laughter]

Shawn Busse:
Here are the numbers! They’re terrible!

Cameron Madill:
You know, in that world, you go back to Jack Stack and the Great Game of Business, and Corey Rosen, who does a lot of stuff for the National Center for Employee Ownership. There’s a lot of amazing work in that space. And a lot of it, it’s like, “Hey, you do open-book management. You want to go to the next level.” Like, you have to have employee ownership, and a lot of it was connected to ESOP.

But my basic understanding then and now is that the ESOP is for much bigger companies, that you have to be 5 million in revenue. And you know, I’ve heard numbers like a million a year in EBITDA. My sense is it’s meant for bigger companies. It also didn’t really speak to me, in that it’s really about maximizing the long-term dollar value of the company for the employees, and it doesn’t have what, in the B Corp space, we talk about as mission lock. It doesn’t really say very much about the purpose.

And so, actually, part of the way we designed it is like we have some poison pills in there, that if the worker owners ever want to sell the company, they don’t actually get that much money. Whereas [with] an ESOP, my understanding is they’re legally required to have a sale opportunity to maximize whatever is the biggest financial return for the workers. So I wanted something that would balance multiple stakeholders, not just dollars into the pockets of the workers.

Loren Feldman:
You were ahead of the curve on that, I think. I’ve talked to a lot of business owners who didn’t fully realize that until after they’d done the ESOP.

Cameron Madill:
Well, they probably have bigger companies, too, in fairness, right? So maybe I would have gone down that path. I don’t know. But yeah, it just didn’t feel like it was right for us. I think it’s a really wonderful thing. But I think, ultimately, it’s kind of like a retirement plan on steroids. And I think I am really attracted to the elements of teaching and practicing and living democratic governments—not democratic management, not that there’s anything wrong with that for people who do it. But that doesn’t actually really appeal to me or us.

One of our co-owners wrote this great article about going from renting a job to owning a job, when she became a co-owner at PixelSpoke. And she sort of drew the analogy to when she bought her first house and how her behavior in the neighborhood changed from an apartment. And so I think with an ESOP, maybe it’s like a really nice condo in a building where everything is taken care of. But a worker co-op is really much more, you know, they talk in the co-op space about rights and responsibilities. And with worker co-ops, like the co-owners really feel both the rights and the responsibilities, I think, to a deeper level than you do in an ESOP. All my perception, though, of course. I don’t know a ton about ESOPs.

Loren Feldman:
How did you get interested in the co-op model?

Cameron Madill:
It was actually an event. They call it the Champions Retreat for Certified B corporations. And it was a guy named Blake Jones, who was one of the co-founders of Namaste Solar out of Colorado, and we had been working together on B Corp leadership stuff, so we never really talked about our companies. And then, I knew Namaste Solar was pretty big, like a couple of hundred people—an order of magnitude bigger than us.

And so it was one of those funny moments where we were always working together on other stuff. And I saw him a bunch at this conference, and I was like, “Hey, so are you guys a worker co-op?” And he was like, “Yeah.” It’s like, I’d heard the intros, but it never really clicked. And that was when I was like, “Could we do that? What does that even mean?” And I think it really intrigued me that you could have a 200-person-plus company that was a worker cooperative. It kind of just did not fit my paradigm of how business worked. And that was what sent me down that path of really exploring. That was my entry point.

Loren Feldman:
So I’m guessing a lot of people listening to this have had no experience whatsoever with a worker co-op. What is a worker co-op?

Cameron Madill:
One of the things that I find really helpful when explaining this to people is: We all kind of know what a co-op is, but we don’t know the different kinds of co-ops. And so one of the ways it’s traditionally explained—and I learned this on our journey—is that there are four main types of co-ops. You have consumer co-ops, which we’re all familiar with. Those are things where the customers of the business are the owners. So: REI, credit unions, a lot of food co-ops.

And then you have worker co-ops, where the people who work in the business are the owners of the business. And then you have purchaser co-ops, where a bunch of entities come together to aggregate their buying power. So you typically have a bunch of different businesses come together and form a co-op to purchase things at scale. And then you have seller co-ops. You have a lot of agricultural co-ops like that. A bunch of farmers come together, and then they have an umbrella brand so they can market and sell and get some of those efficiencies that they couldn’t individually.

So worker co-ops are one of those four kinds of cooperatives, so a business where it’s owned by the workers themselves. The workers will have some kind of eligibility requirements. Typically, the first day you work for the business, you don’t become an owner. But it could happen very fast, or it could happen over multiple years. And then the co-owners, the members of the cooperative, elect a board, and then that board, in turn, governs the top executive officer of the business. That might be a really convoluted way to explain it. But that’s my first take. What do you think, Loren? How can I clarify that?

Loren Feldman:
I’m curious about what you said before, about it not being a democratic management system. But you are reporting to this board chosen by the employees. Do you feel like you have a boss? Do you still feel like it’s your business? How do you think about that?

Cameron Madill:
I mean, they can fire me. Yeah, of course I have a boss. I mean, they set my salary. I think as the former sole owner who converted to a worker co-op, there’s a lot of goodwill. So I hope they won’t fire me. But yeah, I absolutely have a boss. This happens all the time in small companies, of hat-switching. Like, I’m in a meeting. Am I in this meeting with my sales hat on, or my CEO hat on, or whatever other role? And this kind of adds another piece of hat-switching that needs to happen.

So there’s a lot of work in worker cooperatives, especially, to help everyone in the company understand: What are the different hats we’re wearing? And in any given context, which of those hats are we all wearing? Because it certainly injects this interesting dynamic. If Loren and Shawn and I are all co-owners, and we’re on the board of this cooperative, if we’re meeting, maybe I’m the CEO, and you guys report to me. And that’s the meeting we’re having. Maybe it’s a board meeting. And one of you is the president of the board. And the other two were just kind of normal members of the board. So there’s a lot of additional clarity that you need to create to not kind of muddy the waters in a worker co-op.

Loren Feldman:
Shawn, you’ve been open on the podcast about your thoughts about what you might ultimately want to do with your business. How is this landing with you?

Shawn Busse:
I mean, I like a lot of what Cameron has done. I’ve watched him on the journey, and I’m sure it’s not without its challenges. But I think there’s something to be said for the recognition of the employees who’ve helped build that organization and giving them a stake in the game. Correct me if I’m wrong: They actually have to buy in, though, right? Is that correct?

Cameron Madill:
Yeah, it’s a very flexible model. There are seven international cooperative principles that every co-op subscribes to. And perhaps the most important thing that’s going to happen is, if you become a worker co-op, you have a board, and the board is primarily drawn from the workers. And the board now governs the business which, like any good board, should be very kind of high-level, mountain-top type stuff—not micromanaging.

And one of the key design decisions you look at is, there are co-ops where you show up as a worker and you pay $25, and 30 days later, you’re an owner. And maybe you’re on the board or you can be elected to the board, or whatever. I’m very much on the other extreme. I think we’re not the most extreme worker co-op, but we’re, I’m sure, in the top 10 percent of restrictiveness. So I shouldn’t say restrictiveness. It’s just that I really want to make sure if I’m going to own something with someone else, I really want to make sure that they understand what we’re all about and that they’re committed and that they’re not doing it just for ego or financial gain.

So we have a $10,000 buy-in. And you have to have worked with the company for at least three years, and we have a really rigorous six- to 12-month training program. So we set the bar pretty high there, but I think that’s kind of obvious why we’d want to do that. Yeah, it’s a lot different than an ESOP, where you just by virtue of working at the company, you are a quote-unquote owner. That’s a very different philosophy.

Loren Feldman:
What changes at a worker co-op? What were you referring to before when you said that there really is a sense of responsibility and obligation for the worker owners?

Cameron Madill:
A few things I’d like to talk about: One of my real misunderstandings was there’s not like one conversion that happens when you become a worker cooperative. There are really five separate conversions that happen. And I guess I’ll just briefly list them: There’s the financial conversion, there’s the legal conversion, there’s the operational conversion, there’s the cultural conversion, and then there’s this kind of integration conversion. You go from being an awkward adolescent to being a more mature co-op.

When we are bringing someone on as a new co-owner, the new job—just like you bring a new employee on, and whatever their job is, you want to make sure that they have both the skills and you have really good training to bring them up to speed for your organization—when we bring on a new co-owner, we’re really bringing on a new board member. So we need to be able to train them to be a really good board member, and that entails a lot: financial literacy, HR, strategic savviness, understanding the way agendas are structured and why meetings are run in a certain way, and all the protocol that goes along with board meetings. But that’s the number one thing that changes for an individual employee. And then, Loren, were you asking about the organization as a whole as well, kind of what changes?

Loren Feldman:
Well, I was curious, first, from the employee-owner perspective, what it’s like for them, but hearing your answer there, the thing that intrigues me most is, it sounds like you’ve made the process of hiring a lot more difficult. It’s been very difficult to hire people in the last couple of years without training them to be board members. What’s your experience been?

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