Employees Are What Make a Company Valuable

My guest today is Sherry Deutschmann, the founder of LetterLogic and currently Sunset Ventures. Sherry began LetterLogic in direct response to her previous employer’s lack of interest in improving business practices. She built her own business doing the exact same service, but with one key difference, she implemented an employee-first business model.

The model changed how her business grew, including creating a unique culture. Sherry’s intimate business model made her business desirable to clients and buyers alike. LetterLogic was included on the Inc 5000 list eleven years in a row!

Today, Sherry shares what lead to her decision to sell LetterLogic and what she would have done differently in hindsight. Employee-first companies are a  rare business model, but the results can be shockingly impressive. Sherry makes a good argument for the business model and also warns against the downside of selling a business built on the employee-first mindset.

You will learn about:

• Sherry’s business background and how LetterLogic began.
• How Sherry pivoted from outsourcing to moving her services to in-house.
• Sherry’s initial goals for the business.
• Why she decided on an employee-first business model.
• How profit sharing changed Sherry’s company culture.
• The customer reactions to Sherry’s way of doing business.
• How an expensive mistake drove Sherry to sell the business.
• The way Sherry’s mindset changed once the due diligence started.
• Why Sherry hired the business broker she did.
• The types of buyers that were interested in LetterLogic.
• The must-haves Sherry had to sell her business.
• The 15% profit share of the sale Sherry gave her employees.
• Why Sherry wasn’t satisfied with being on the company board.
• The ways the company changed after the sale.
• What Sherry would have done differently.
• Transitioning into an angel investment firm.
• Sherry’s upcoming book.

Do you know the full value of company culture? It may surprise you to learn just how much value you, as an entrepreneur and business owner, can get out of establishing an employee-first culture. Sherry Deutschmann talks real numbers and how her company profited under this business model.

Employee Centric Business Model

One of the values near and dear to Sherry’s heart is paying it forward. As most entrepreneurs do, she established her business after discovering a severe lack in her industry for client care and company culture—she found herself endlessly apologizing to her clients on behalf of the cold culture at the company she worked for.  Enter her first entrepreneurial step: selling everything to better fulfill this very niche market service gap.

She started her business in her basement and refused to compromise on her values. As she worked to grow her company, she made sure that her employees had as much buy-in to what she was doing as she did.

How did she make that happen?

She started doing some research into how to make her employees more invested in the business. What she came up with as unique approach to the market which included raising her minimum wage to more than double the state average and even employing profit sharing. And she found that neither of this things negatively impacted profit; they actually caused her company to boom!

While there are many courses you can take and seminars you can attend on how to improve employee culture at your company, Sherry’s advice is practical and proven. She suggests taking a look at the two lowest-earning employees at your company and looking at what would happen if they got married and tried to establish a family where they live (hypothetically, of course!).

In her particular case, she realized that at the wages she was currently paying these two employees—despite being higher than the state average—wasn’t enough to ensure a good quality of life. They wouldn’t be able to afford to buy a home, for example, and forget raising kids and sending them to a good school. So she raised their wages. However, after further number crunching, she realized even that raise wasn’t going to be enough—so she raised them again!

What happened next was remarkable. She was hearing success story after success story of employees who were now far more productive because they were able to focus on doing their work rather than worrying about getting off in time to go to their second (or third) job or if they could afford to get a sitter on a day that their kids were sick. 100 little worries, and some major ones, were solved by increasing the minimum wage.

But Sherry didn’t stop there. The other big monetary change she made compared to her industry was to start profit sharing. In the beginning, the checks may only have been $7, but the precedent was set and she had everyone’s buy-in. From a trucker to the CEO, each employee received a share of the overall profits of the company and therefore was more engaged in their work to increase those profit margins.

This meant that there was less human error, so fewer costly mistakes were made, and client retention was at an all-time high. It also meant that the sales force wasn’t considered the bad guy, even though they got paid more on a daily basis. The sales team shared in the profits equally (not more than) their peers, so they received unequivocal support and made sales based on client need rather than for the purpose of hitting monthly bonuses.

In the end, profit sharing checks reached $1,500! That’s pretty impressive when you think about the impact on employees who received this bonus regularly.

But What Does This Cost Me, the Boss?

Unless you’re looking to skin the cat to make your first million, you aren’t going to notice a huge cut in your take home. You’ll also see better client and employee retention, leading to a more sustainable business and a more attractive acquisition when the time comes. This all puts more money in your pocket in the long run. We all know the hassle of finding good help and keeping it, as well as the cost to us as the employer to train new people.

When Sherry noticed her expenses rising and that she wasn’t earning a profit—and therefore had to go into her meetings and let her staff know that there would be no bonus—she took a close look at what was causing the disconnect. It had nothing to do with her employees whatsoever. Rather, it was because she was spending money on trying to take the business in a direction it wasn’t equipped for.

Due to these two months without profit, she decided to sell her business.

Selling Your Company Is Emotional

Although her business had made the Inc 5000 list 11 years in a row and she had seen profits for 60-70 months prior, she knew the time had come for her to close her chapter with this company. It was an extremely hard choice for her because of the incredibly close relationship she had with her employees.

While the decision was very emotional, she set on it with a very calculated approach. She took on an advisor to help show her where she had weaknesses and strengths and to help her make her company more appealing to the market. From there, she also focused on what mattered most in the sale—ensuring that her employee-first culture would remain intact.

As many of us know who have sold companies before, rarely do you close a sale to another company and retain your culture in its entirety. Sherry made a good attempt, but hindsight is 20/20 and if she could do it again, she would choose to be the acquirer and absorb another business into hers which would provide the digital services she required to continue to grow her business without losing the moral fibre of her company.

Upon selling her company, she had one-on-one conversations with each of her employees to give them yet another sort of profit sharing: she chose to share 15% of the profits from selling her company with her staff based on their tenure. While this may be beyond your purview, you can imagine the resounding impact this had on each of their lives. This final step was one more way for Sherry to live her core values of employee-first culture and paying it forward.

When you look at your business, can you improve your culture? Can you improve your employee’s lives by restructuring how you compensate them? If so, do you see the value in doing it?

Takeaways:

1. Sherry showed great tenacity with her employee-first business model, that particular model is difficult to honor. Sherry honored it with integrity and consistency. The employee-first mindset lead to awesome results and made Sherry’s company culture unique and attractive. Sherry sincerely cared about her employees and really changed the lives of her employees with her business practices. Buyers took notice of Sherry’s genuine care.
2. When you choose to implement the employee-first business model it is very difficult to leave the business. If you are considering this business model, be prepared for selling the business to be difficult. Over time the business becomes like a child. Be sure you want to sell and are ready for the pain.

Resources and Links

Sherrydeutschmann.com
Sherry on LinkedIn
The Status Quo Sucks
Finish Big by Bo Burlingham

About Sherry:

Sherry Deutschmann left her career with a major medical billing company to start her own. That company became LetterLogic. Sherry built a highly profitable business on the mindset of employee-first. She saw rapid growth within 18 months and moved her business out of her basement. LetterLogic was present on the Inc 5000 list 11 years in a row! This impressive growth and unique culture made her business very attractive to buyers. After an emotional sale, Sherry started an angel investment firm for women entrepreneurs called Sunset Ventures. She has shared her business experience as a mentor and is the author of many upcoming business books.