Mark Grover Of Lightspeed Technologies On Why ESOPs Are the Future of Business Succession

An Interview With Chad Silverstein

Ensure a healthy culture is in place. Engaged employees are less likely to leave. Longevity benefits both the company and the employee’s ESOP account balance, the longer an employee stays, likely the more their account balance will grow. A growing account balance provides a very tangible benefit and testament to the power of an ESOP.

The global pandemic has forever altered the landscape of sales, propelling us into the era of remote selling. Today, businesses and sales professionals face the challenge of connecting with clients and closing deals without the traditional in-person interactions. Mastering the art of remote selling has become not just an advantage but a necessity. From leveraging technology and digital tools to building trust and rapport over virtual platforms, the skills required for effective remote selling are evolving. I had the pleasure of interviewing Mark Grover.

Mark has been with Lightspeed Technologies for 7 years. Mark joined the company as CFO/COO and today is the CFO/CAO and serves as a member of the Board of Directors. He considers it a great privilege to be able to work at Lightspeed alongside a great group of fellow employee owners.

Thank you so much for joining us in this interview series! Before we dive in, our readers would love to “get to know you” a little bit about you. Can you tell us about your ‘backstory’ and how you got started?

I had a traditional start to my career working in various accounting roles right out of college. This was a bit unfortunate because I discovered during my senior year college that I didn’t actually like accounting. A few undergrad finance courses convinced me that finance was something I could be passionate about and yet, I kept finding myself in accounting roles after college. After eight years in the workforce, my supportive wife and an obscene student loan enabled me to get a Masters in Finance degree which opened up new opportunities to escape the accounting department. Even in traditional accounting roles, I gravitated towards the operations side of the business. I eventually found myself in more operations focused roles although with a finance focus and accounting experience called upon as needed. This positioned me well for an opportunity to join Lightspeed Technologies, my first experience of working at an ESOP company.

How would you describe the culture at your company and what has been the biggest contributor?

Having a strong culture based on values was a focus of our company’s founders. They set out with a purpose of creating a company where people would want to work and with values that aligned with their own. Over the last thirty years, the people have changed and the culture has adapted to reflect the current group of employees but the values-based foundation has remained solid. It’s hard to think of a bigger contributor to the culture than our founders and the ongoing commitment from current employees to honor the desires of our founders to maintain the strong culture.

How would you explain what an ESOP is to someone who has never heard of it before?

It depends on the audience. For employees, I’d describe an ESOP, at its simplest, as a wealth building and retirement plan and a means to share in the ownership of the company. An ESOP can establish ownership for employees that allows every employee to participate in the financial success of a company. For a business owner, I’d describe an ESOP as a viable exit strategy that can deliver a tax advantaged sale of the company and a way to preserve jobs, allowing the company to continue independently while allowing the owner to depart.

Looking back, what was the catalyst that made you start thinking about transitioning to an ESOP?

There were two significant events to becoming 100% Employee Owned. First, in 2009, our founder and the Board of Directors were working on a succession plan and an exit strategy for our founder. At the time, our founder was the largest shareholder but also one of over 50 shareholders, comprised mostly of current and former employees and friends and relatives of our founder. There was a desire to provide liquidity to these shareholders, protect our employees and preserve the legacy of Lightspeed. Despite alternative options, the Board elected to form an ESOP and implemented a plan by which ownership of the company would be gradually transferred to the employees through contributions to the ESOP from a portion of the profitability of the company, a tremendous display of generosity.

Fast forward 10 years, the ESOP owned about 30% of the company. Our founder had retired. Long-serving members of our Board, many of whom had retired from their professional jobs, were looking to retire from the retirement activities of serving on the Board and we still had about 50 shareholders collectively owning the remaining 70% of the company. We engaged with a financial advisor to evaluate a variety of options to honor the original intent of our founder of preserving the legacy, protecting the employees and providing liquidity to the shareholders. The obvious choice of taking the company to 100% Employee owned fit these requirements perfectly. Accordingly, in 2021, Lightspeed was able to buy back the 70% of the shares not owned by the ESOP, leaving the ESOP as the remaining shareholder. The purchase was completed without debt, instead relying upon the operating capital of the company, another display of tremendous generosity by our founder.

Was there ever a point you doubted the ESOP route? What kept you motivated to push through those challenges?

I can confidently say that I’ve never doubted the decision to become an ESOP but that doesn’t mean there haven’t been challenges. Every year, there seems to be something new to learn or some new challenge to address. Last year, our ESOP was randomly selected by the IRS for a Form 5500 Audit. No one wants to be on the receiving end of a notice that you’re about to be audited and we were no exception. At the same time, we have always had a strong commitment to doing things the right way, striving to be above reproach. So, the audit was a bit nerve-wracking but we also went into the audit with the confidence that there was nothing to be concerned about and that’s how the audit concluded, with no findings or comments.

Today, we have over 100 participants in the Plan. The average account balance in the ESOP exceeds the average 401(k) account balance by over 35%, even with an employer match to the 401(k). We are creating employee ownership opportunities and providing significant savings toward retirement. We are also continuing to honor the desire of our founder. It may not be the easiest path to follow, but we know it’s the right path, and with grit and determination, we intend to stay on this path.

ESOP companies often have a distinctive culture and operational approach. What makes your company stand out from others, thanks to the ESOP structure?

Our company had a strong culture prior to becoming an ESOP but the move to becoming 100% employee owned solidified the employee ownership mentality most company’s desire. While there are no guarantees and the future is always somewhat uncertain, we desire for Lightspeed to be in business 100 years from now and navigating through one change of control event with jobs intact provides a clear path towards that goal. Similarly, this change of control event can give confidence to our employees, customers and vendors that Lightspeed will continue to deliver the highest quality products and service we’ve built our reputation upon for the past 30 years.

Great. Now, let’s dive into the heart of our interview. The transition to an ESOP involves a lot of challenges and opportunities to learn. Could you list the top “Five Things You Need to Successfully Leverage the Power of ESOPs”?

1. Ensure a healthy culture is in place. Engaged employees are less likely to leave. Longevity benefits both the company and the employee’s ESOP account balance, the longer an employee stays, likely the more their account balance will grow. A growing account balance provides a very tangible benefit and testament to the power of an ESOP.
2. Education is critical. ESOPs are not easily understood. Unless an employee has worked for another ESOP company, they likely are unaware of what an ESOP is, let alone how they can benefit from working at an ESOP company. Regular employee communication is essential to building and sustaining at least a cursory understanding of an ESOP. Similarly, as one of the administrators of the plan, I still encounter something new nearly every year, serving as a reminder that there’s always more to learn to best manage and administer an ESOP.
3. Engage with the national ESOP research and advocacy organizations. The national organizations are a valuable resource of data and trends and provide access to an engaged network of other ESOP companies. I try to attend at least one national conference each year. The shows are not just for administrators and fiduciaries; there’s a wealth of knowledge available on company culture and communication as well.
4. Leverage the knowledge and best practices of other ESOP companies. The ESOP community is comprised of some of the most well-run companies in the country. Many of these companies generously share their experiences of being an ESOP company, offering examples of both their successes and struggles of being an ESOP company. This is one area where reinventing the wheel is easily avoidable.
5. Partner with ESOP Experts. A third-party administrator is a wealth of knowledge and provider of on-going support. Finding the right ERISA attorney who specializes in ESOPs can help avoid problems and provide guidance when issues arise. An independent trustee is essential. Collectively, a well-designed plan, that is actively supported, managed and maintained, with adequate governance in place, can continually deliver all the benefits an ESOP can offer.

Financial literacy is crucial in an ESOP for employees to understand the value of their shares and how their actions impact the company’s success. What initiatives have you taken to educate your employees about financial aspects and the workings of the ESOP?

Our employee onboarding process consists of ESOP education, explaining what an ESOP is, how Lightspeed became an ESOP, how employees become eligible and vested, how account balances grow and how they can get their money. At least annually, we deliver a similar message to all employees and experience has shown us this refresher is critical to building and maintaining at least a cursory understanding of an ESOP.

We also are very transparent with our financial results, if we expect our employee owners to think and act like owners, it makes sense to treat everyone as owners by discussing our financial performance, both the good news and the challenging news. This doesn’t mean we tell everyone everything but we regularly discuss our sales activity and, on a quarterly basis, will present our full financial results, sharing highlights from our income statement and balance sheet.

When presenting results, we endeavor to tie specific actions and decisions to our reported results, whether it’s a revenue producing event, product margin improvement or expense savings initiative. Doing so provides an opportunity to remind employees how decisions and actions can affect profitability and how profitability can affect share price and how share price impacts the dollar value of their ESOP account balance. There is a connection that can be understood for the most to the least financially savvy employee.

Company culture and the ability to attract top talent are critical factors for business success. How has adopting an ESOP model impacted your company culture and your approach to recruiting and retaining employees? Do you believe the ESOP model has given you an advantage in the labor market?

Absolutely, even though this is an area where we desire to continue to try to improve. One challenge we face is ESOPs are generally not widely understood by most candidates. Few, if any, have ever worked for an ESOP. Most are genuinely unaware of what an ESOP is or how it functions. Nevertheless, we share early in the recruiting process that we are 100% employee owned and provide a high level explanation to partly convey the value of being employee owned. Realistically, it takes an eligible participant seeing their first account statement, a year or two after they were hired, to truly see and understand the value of the ESOP when there are real dollars in their account, dollars that they didn’t contribute but were contributed for them.

How can our readers further follow you or your company online?

Visit us at www.lightspeed-tek.com or follow us online at your favorite social media platform.

This was great. Thank you so much for the time you spent sharing with us.

About the Interviewer: Chad Silverstein, a seasoned entrepreneur with over two decades of experience as the Founder and CEO of multiple companies. He launched Choice Recovery, Inc., a healthcare collection agency, while going to The Ohio State University, His team earned national recognition, twice being ranked as the #1 business to work for in Central Ohio. In 2018, Chad launched [re]start, a career development platform connecting thousands of individuals in collections with meaningful employment opportunities, He sold Choice Recovery on his 25th anniversary and in 2023, sold the majority interest in [re]start so he can focus his transition to Built to Lead as an Executive Leadership Coach. Learn more at www.chadsilverstein.com