From an Attic to £80M: Tom Glanfield Gave Away Half His Business and Made Several Staff Millionaires

Tom, welcome to the pod. - Hey Hisham, thanks for inviting me on or I just haven't invited you down to the Starbucks build. I definitely proposed it, really cool to be here, haven't been here before. One of the things that I've heard you say loads of times and also doing the prep for this and definitely getting to know L.H.I a bit is this real core belief it seems that you have around a hundred people staying together to build one recruitment company. You'll have a much higher chance of building real exit value that everyone benefits from versus those same hundred people all spreading the wrong off, starting on our own separate firms. - Yeah. - Talk to me through why you believe that so strongly, that really is at the core I think of this story. - Yeah, well I mean if you think about how many registered recruitment businesses there are in the UK, I think it's 95% of them are less than 10 people. The whole thing about recruitment is if you can scale as well as to be sheeped to open your own recruitment business. But if you had a hundred people in a company and you gave actually your way to all the staff, so everyone had actually in the company, that can be worth a lot of money if they're all building a certain amount. But if a hundred people all left, started doing business, you had a hundred different businesses, all those businesses wouldn't be worth any money at all individually. So I think by keeping everyone together and giving our XT is a way to create big value. - And give me a bit of an idea on the time on on this. So you launched in 2002, when did you actually start giving XT away? - It was quite early on I did it all wrong initially and I learned from it. Not wrong, I just had to change my scheme as I scaled. Tell us about that scheme then. - So that's what people can learn from. - So when I started the company, I was struggling because I was having to run the business myself, train myself, I was having graduates, I was doing all the admin like chasing invoices, doing the clients, et cetera, et cetera. It was just going slower than I wanted. I thought to really sort of juice this up, I'd bring in some senior talent. So I bought in sort of three or four kind of key people, one in contract recruitment who I had no experience of contract recruitment, one just for a good permed leader, one just amazing all out permed beller. And I bought them in by actually giving them, which sounds ridiculous, 10% each. - Well, so they could get 10% of the business based on targets over a five year period. So it's like 2% per year based on targets. Because when you're small, you have to give away a lot of people who want to join. Otherwise, if you gave someone like, I could be half percent of the company. I knew 10 people were strong. People would look at it and go, yeah, well, if I'm going to take that risk, I'll leave my business for you. The reason I'm leaving a bigger business to join your business is to get equity in that company. I think there's quite a few issues with that model is you have set equity pieces that people are getting. I just see that in relation to a target, which they either completely smash or they just miss it by, certainly miss it by 10 grand. So it's 200 grand a year target to get that 2% or whatever. Do you give it to them? Do you not give it to them? Yeah, hard. And if you give it to them, and then you get someone the following year who misses it by 50 grand, then they'll complain, well, you gave it to her, but you didn't give it to me and you're favoriting someone or, to see if it'd be really hard. So it's only missed it by a grand target you had to say, no, you're not gaining equity. And then they're massively demotivated. And then you get issues where, if you're on the same equity scheme, gain 2% each per year across or for them, then if one of them absolutely smashes it, they're like, I should be getting more equity than everyone else. So it causes all these issues. So they stay with the business end on that? Yeah, one of them was Mike Pop. So he's like, see you now. Quickly, what was the rough timeline of like version, let's just say version one of that sort of scheme, was that in the first five years? Yeah, it was like five to 10 years. We just hit the fastest-growing companies to work for them. So it was about 2012. So basically when you got to that stage, I was like, I need to keep skating this company and I've really given away like 40%. So what I said to the guys, was like, look, I've come together, and I said, I want to give away more equity to get more staff involved, to make the company worth more money, and to make your equity worth something, hopefully in the future, because there's only worth something when you scale it and sell it. So basically, I said, I value the company at this. So I will give you, I think it was like about 50 grand each at the time, half your equity stake. Wow. So I said, I'll give myself about that. I'm gonna give you a 50 grand check for actually I've given you for free, but you'll still keep 5% in the business. I'm gonna pay for the equity to get back. And then I'm gonna use that actually, I've just bought from you to give away free to other people to join. So we can like keep growing it. And then hopefully make your equity worth, actually worth something, because actually it's only really worth something when you want to sell. I had similar schemes where I kept giving this time, because it's coming as bigger, I was giving away 1% and 1/2% to people joining. But again, I had these issues. All joining for like senior highers to get them involved. But again, I had the issues of, he's got 1%, she's got 1/2%. Yeah, a bit messy. The 1/2% person is billing way more than a guy 1%, so she's now going mental saying, I want more than 1% and you always have these issues. And it's really hard. Couple years after that, I did this new scheme. It's probably our biggest thing that we implemented at LHI. That was completely unique, I believe, to us. And I think it was pivotal to our success. But I basically put in places, equity scheme, where people got equity units based on the growth they did of the business. So if you agree something, so if you're a team leader and you're growing a team below you, we would compare your team's billings to the same period the year before and see how much you've grown. And based on that, we would give equity allocations to people. The more you agree something, the more equity you've got, the less you agree something, the less equity you've got, the less equity. And we gave out equity units every 1/2 year. What's really great to hear is that you didn't have the perfect scheme straightaway. That's just what's really helpful. Someone might be in that messy bit now. And actually, they might just go back to the drawing board and go, actually, how can we really match up the incentives? - I wanted to completely clean. So say you have 3% of the business and you're going to this new scheme. I said, I will give you the equity units of this new scheme equivalent to 3%. So you're on it straight away at 3%. And then you just start running with it. But the great thing about the scheme is it rewards success. So the people who are growing something consistent a year and year, they get more and more equity. And the people who are flatlining or doing less get less and less equity. So it kind of starts becoming this self perpetuating, self-regulating system. And it's amazing because if someone isn't performing, no one else can complain about them 'cause they just know they're getting less equity. And if someone's like smashing it and looking at the park and really growing self-adjustifier, yeah. And then I looked at quite a few companies at the time. So basically S3, there are different businesses. They had like real, progressive, competitive features, these different businesses. But they were set up as registered businesses. So they would give equity in these individual businesses. What that meant is it was quite hard to move staff from one brand to another. And the way I did it is I did initially have them as separate brands, each brand was a separate business. But oh my god, the paperwork. I had to have like obviously do a council each company. I then had to have bank accounts at each business. And then when we set up, say in America, you'd have multiple businesses. So it became a mess. So in the end, I simplified it massively by just having three companies. I had LHI, LTD, LHI, Inc, LHI, GMBH, and LHI, LTD, owned LHI, Inc, and LHI, GMBH in whole. Each brand just became a trading name of LHI Group. So basically I was only giving equity in LHI Group, LTD. And what I meant is everyone in the business could take the equity and just move from one brand to the next, say, Cypher, LHI, Cypher brand wasn't performing as well for whatever reason that year or in the next two years, we could move stuff from that brand into say, Python, Maddox, I'm a new brand. And they would still retain their equity. So what I wanted to do was create a system where we could move people really easy throughout the company without any issues. Simulability for me was really important. - Just some people have the context. So you've spoken a lot about giving equity away, but worth saying that you had 100% of it, like it was self-funded, right? - Yeah, yeah, so there's that. Did you sort of from the get-go say, I'm going to aim to allocate 50% of the business to the employees or how did you. - So when I did the system that became self-regulating, what I actually did was I gave away 50% of the business to staff. The reason I did that is I wanted it very much, the marketing message 'cause I always kind of think at the top level of marketing as well. Being, it's a team, it's me and the staff equal. And I thought it was quite a powerful message to have. Not it's like 80% owned by the owner, it's like 50/50. As the company gets bigger, the multiples you sell it for become bigger. So say when you're small, the multiple would say, a four multiple or when you become quite bigger, it's saying eight multiple. In my head, I was saying to staff almost like, this is almost like me giving you 100% of the company 'cause we are, we're growing the business. It's like you having your own business that are four multiple instead of 50% at eight multiple. - Was there any moments of regret of like, oh my God, I've given away 50%? Like, was there no? - No. - Okay. - I always had like a real goal and a vision, to me it was really important to see it three. Otherwise greed can take over, right? And stuff like that. So basically, I was giving 50% away. To me, I was getting the coming to a 5 million plus EBITZ. And I was saying to staff, once we get to a 5 million plus EBITZ, we will look to sell the business or at NSTAN office. So I wanted all staff to have between them 50% in the business. So they're excited about selling. I've seen so many companies where they haven't got XT. The owners pushing towards the sale, everyone knows they're trying to sell the business to bugger off. And everyone leaves motivation. Whilst this is like, actually everyone's really excited. What I did well was I really mapped out what we need to look like, how we're gonna get there and clearly communicate that to staff. So I was like, we need to get to at least three office locations internationally. We need to have at least three brands, non-competing, and in totally different areas. And this is to make the business robust. So, let's say Renewables was doing really well. You can be. into it, or if we're renewable, starting really badly, you can move staff from that brand into say Cypro or to IT. And along the way, I will eventually step away as CEO, because I think there's quite a reputation recruitment certainly as an industry that if the original owners sometimes step away, the whole business starts falling apart. And that we also need to get to over a hundred staff in headcount to be a kind of robust business. So as we kind of grew and we opened offices and we opened different brands, it's almost like everyone can see my whole plan unfolding in front of them. And then as I stepped away as CEO, instead of people going, our Tom stepped away, he's going every day now, I'm playing golf and we hate him. They're like excited. And also then I then got to my gym to see a, we've got this real thought process in the company of succession. And because everyone has such good equity in the business, everyone almost cares more about the business than they do themselves and where they're going because the money they can get from it has been so much. I know it's hard because the plan worked from what's the successor outcome. Once I got to five minute, I think what you're indicating is it could have been quite easy for me to regret giving away as much equity as I did. But you also remember, that's what got me there by giving away the equity. Also, a lot of people say, instead of selling it, why don't you just, because you gave away so much equity, it's almost you better for you to not sell it and keep it and pay yourself like if you're doing a 10 million, pay yourself like 8 million a year every year for best of your life. But it never works like that because if I did do that, staff would quickly see, I'm not selling, I'm just milking it and they'll start leaving. And I always had this power and oil that in recruitment, it's a bit like a permissible team that wants to start sinking. Everyone starts jumping ship. It's quite fragile like that. I always wanted it. Everyone's thinking it's dressing forwards, moving forwards and we're heading towards a cell and then we're going to do a cell. And that also builds trust in me. And as soon as we hit that five minute, we sold from my conversations, if we were inside other recruitment offices that had a similar scheme to LHI, I think there's something that if around how much they're actually giving away, because it might have been just 5% or 10% or small percentages, I think that's the thing to highlight then. And as you just said, you might have had maybe moments, but you was like, well, actually, like we would be nowhere near where we got to if I didn't have the team, if they didn't get bought in the 50% all of that, so it's all part of it. Yeah. If we're criminally, there's a listening and they want to get that worth creation event is maybe actually taking a step back and going actually that the incentives really do match up or actually, like you just said, where a lot of people are thinking going, ah, they're really driving this exit because they just want out and they're going to be the majority people that benefit, which is fair. They're the founders, right? But I think actually it needs to be a bit more closer to where you guys got to, which is 50% as a substantial amount of equity. Yeah. I think that's why you hear a lot of people give away equity in recruitment companies, but actually sometimes it often doesn't really materialise into anything, and I do think part of it is does it really galvanise the team enough if they know they've got equity units in a 5% stake or 10% stake, do you know what I mean? Yeah. I mean, the way I communicate was we're going to sell for at least a 5 million event. I would do a 10 times multiple, so it's 50 million, so basically I'm giving 25 million outstaff, but then obviously we sold for 10 million event and smashed it. So then it was 40 million outstaff. We'll get back to the episode in just a moment, but first I want to tell you about one of our long-term partners source well. 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What I really like about it is its modular approach. You don't have to rip out your entire tech stack to get the most out of source well. You can plug in what you need. If you just need sourcing, data validation, inbox automation, and AI note take a conversation, it all flows back into one place. Or you can run it in there all in one CRM and ATS replacing up to 10 separate subscriptions with a single workflow. Either way, less Admin, more conversations, more deals. So if you're looking to cut tool costs, get it into one more streamlined platform, increase profitability per head. You'll be able to connect with source flow with the link in the show notes and get your hands on an exclusive deal because you listen to this show. Let's get back to the conversation. Do you reckon you could give us a bit more on how this scheme ended up being really powerful? So you said it was around growth. Is it anything specifically that you could share with people? So you just said it was year and year. If percentage grew by X, was it like head count, was it just revenue, was it NFI, whatever, that then equaled X to units? Just give us just like more of that look like. Because that's in obviously quite pivotal. I sectioned 50% of the business. So it couldn't go over 50% of the business. I created a unit scheme, EMI unit scheme that dictated, we allocated say 1000 units in the first X to release every six months. So say we did a thousand units. If you had a thousand units, you would have 50% of the business. Every six months, we gave out a thousand X to units and we kept track of it like how many were in total and say you got a hundred X to units, one six months and then a thousand the next six months, you got 1,100 X to units. But in total, there is in that 12 month period, there's 2000 X to units in the business. So you've got like 12% of that 50%. If you're a team leader and you're the team, we put all our team leaders in the league. We got the Billings of the team and then we compared it to the Billings six months prior. So what was the growth and what did your team do of it? Say the growth was 200,000 in GP and your team did 100,000 in GP in growth from the previous six months. You got 50% of the X to units and if you did 0% growth, like if you build the same, you got nothing. Was it just on that growth? That comes back to your point, you just kept one in the momentum, we're going, it's all that. Everything we're facing was reward growth. Just turn up, do your job, look after the team and then build the same amount all the time. It's not good enough. Like you've got to be growing. You growing something is what's creating equity and the consultants actually just basic consultants actually hardly got any equity. They just got their Billings and they got their money, their commission, because that's what they're going to pay for. But if they left to say you're 200 grand per on Bill of me, you leave the company almost all your Billings go with you. So you haven't actually left any value in the business. Whilst if you grew a team of 10 people over a couple of years and they're all Billing 200 grand and then you leave, you've left a legacy. So it's all about legacy and it rewards people who grow a legacy in the company. How did it work in terms of like if someone did that and then left, obviously does that mean they're not in 12 to 10 years? Yeah, so basically they lose their X units because it's got to reward loyalty. I mean, say for me, if I started it, I would never get any money to it sold. So everyone has to stay together till sell. So again, it's a big thing to help keep that company together. And it also helps your value when you sell, because anyone he's buying your company, if no one else had equity apart from you, they'd be very nervous that any one of these employees could walk out the door the next day. Say I was buying a business. If the staff were on 50% actually, I'd be like, happy days. And I say, look, I'll give the staff 10% of their X unit day one, yeah, then 50% on end of year one, then 50% end of year two, whatever it is, but it's a way of locking them in. Did you work with anyone to develop this game or was it very much like you had in the spreadsheet, had it like. No one I expected ever done the scheme, even when I spoke to lawyers, they said, we've never seen this been done before. So I think we were quite pioneering almost in that respect, any other recruitment business, apart from the ones I advise, because I put in the same scheme and all of that. Because I generally think it's, it's the best scheme. And people would just say, yeah, can you see something different? I could do, but nothing as good as this, this works. It works really well. Okay. Where most recruitment companies make mistakes, is it's all about their consultants and their billings. And where we made it different at LHI was we had leader leagues, director leagues, office leagues. So even at an office level, you'd have a league of like New York, London, LA. And that was again based on growth. So if you're top of the league, it meant your office had grown in GP the most compared to the previous six months. So those office leaders got their equity allocation based on those office growing. It just really simplifies the incentive like if we're all growing, then we're growing the enterprise value of the company. It's just you really just simplify the golden thread of incentivizing growth essentially. That is super, super smart. A classic quote is any fool can make it really complicated. The hardest bit is make it really simple. So if you make something that's really simple, but a lot of thought and work has gone into making it really simple, that's what works. It's something that like you say is really simple, easy to understand, easy to see. When it's really complicated and it's got different exit schemes, it becomes a massive mess. And then you talk to a bit about, because there might be someone listening right now that they're really, it may not be exactly the scheme that you have, but they're confident with it, they're happy with it. How did you then consistently galvanise people around the every six months? You've got a chance to get this. Like was it every six months you'd be giving people an update where you do a [BLANK_AUDIO] presentation on like this is what's happened, this is what our profit is, like how did just just so we can hear actually how you do every six months, everyone would get the leagues of where they are, the leader leagues, team leader leagues, consultant leagues, office leagues. So you can see like where you are in the league and you have a rough idea of what equity you're guessing. We'd always do a big shout out to whoever's got this amount of equity and things like that. And we just always pushed it. I think one of the great things about the scheme is because it did reward people who went to fast growing areas. It pushed people to like go and open offices in America and things like things that they'd never done before. And because if you opened an office, you went into like a slightly higher tier equity league, but you get more equity. It would push people to take risk as well. And it really did work. So even if you look at Ben, he's now Kasey with Mike, he was always a bit of a homeboy, you know, he kind of never really left London, but he was just incredibly ambitious. And he said to me, how can I get more equity? And because when you're just in a market, doing the London market, it should be known for years, it can start getting harder to grow something. So I said, you need to go and open a new market. So he went to LA and basically open that office with Jim. How transparent were you consistently around the years leading up to, like you said, you always had this North Star of 5 and an E bit. Obviously ended up smashing that, but leading up to that was your very transparent throughout. Was it always if I was in one of your like end of year annual conferences or whatever, you do a whole thing of like, this is our profit, this is what we're thinking about. We always do like GP, what I target was, what we hit. So every six months, we go to a conference and we'll be all headline figures, ebit figures, what we're doing. And we explain it to them because you had to really educate people as well. So our GP was growing fast and sometimes our ebit was a lot lower than 5 million. There's some people might get nervous about it, but then I explained to the staff what I have to get to 5 million ebit. We're doing a period of opening more offices, investments to the company, as a result, our ebit's going to come down, but our GP's going to be going up. As long as our GP's going up, I know I can play that through to ebit. So as we approach the sale, we're always slowing the GP, slowing opening more offices and things like that. Not necessarily slowing the GP, but slowing opening more offices, because that's what costs a lot of money. And then we can grow the ebit to then sell. Yeah, because I think that's the other thing from our conversations. I know people in recruitment who have shares in their recruitment business and have no idea on what those numbers are. Yeah, how they believe their company is actually going to get to a worth creation of that. It's going to be from the top. It's going to be constant vision, transparency and open communication. So everyone's completely in. Because you might have people I've spoken to, so I've got this equity in this business and I don't even know what it's worth or when they're going to sell or what their plan is. And then it's worth nothing. The thing with equity is it is worth a lot of money if you got it and the company sells. It's not worth anything if the company never sells. Yeah, exactly. That's what I mean. Say for me, I was obsessed by everyone knowing the plan and on that plan, really, on that journey with me. I was just constant communication. That's also where you were learning there. I'm making myself redundant all these things. So then yeah, because that was the sort of thing. You're really on this journey. Just like Tom's now got grown. He does not get involved anymore. He's just sitting back. Yeah. And then when I announced, I'm stepping away. There was almost excitement. Because they're like, we're being closer. Not that like I was terrible. Like fuck, he's gone. But it was more like the plan is we can see this plan really. And then also towards the end, towards the sale, I did also notice people's game of sex with equity. Because they could just see something like quite maybe worth a lot of money. We'll go on really how this impacted people's lives in terms of the end outcome. But from your perspective, I know that you've met a bunch of other recruitment companies. Now you've come out of this journey. But what would you say if you're speaking to another recruitment leader? What are the other real downstream benefits of this scheme getting this really right? We've spoken about everyone galvanising growth performance. But what else do you think from just owning a recruitment business downstream? It really helped you with the other big positive impacts that you found? It brings the whole company thinking more about the company than just what they're getting in their personal pocket. There's almost people like just before you started wanting to sacrifice not getting salary increases. Because they knew that if they didn't get that and if no one got a salary increase that year, the amount of ebit would add. I'm going to be sold. Don't ever want to get more money back in equity. So I think it starts maturing the business a bit. I think one big thing is an recruitment is bringing in people above people or when you've got like three team leaders and you've got to make one of them. And then as a result of placing one of them, the other two like leave because they get annoyed that I didn't get the drop. And I think it's like, you see that I am placing this guy above you because I think he will help you better grow your team, which is going to get you more equity. So everyone is just thinking about equity and the business, not just their own. That can be really hard to really get people thinking that way. It is a great way to just retain all your stuff. As someone was head hunting you, we're about to sell. You can think, unless you're going to give you a million pounds final bonus, I'm not going to leave right now. And it's almost like with LHI now, we've got the play ownership trust. And there's going to be another payouts again when we sell again. And so it's almost like when people say, uh, some of the head hunting us, they can head hunting as much as they want. No one's going to leave us because they've been nuts. It's been a lot harder. Yeah. Tell us about the store because I think this is a real great example of what you're talking about this collective thinking, really bung into the company vision where it's going, not just thinking about themselves. Tell us about this New York story because I do think that's that's a quite cool example of they made decisions of it's going to help the business, right? Tell us a bit about that. The key things you've got the same in all businesses is you've got people, strategy, execution, and cash. They're like the four pillars. So if you look at recruitment, it's all about people like everyone's should be really because people are also your products. It's not like you're making a car and you can argue people are less important because you've got a product. Um, us in recruitment people are making the product. They're finding that candidate and selling it. So people are critical. But then you got execution and things like that and strategies. So you've got like your growth, like where you're heading and how you're communicating that and your execution and giving it XT. But then you got cash. And cash is also massive because you can grow, grow, grow, grow. But you don't have the cash to do it. You're going to go bust. And when you're growing your business, obviously cash is king because when you grow a business, it's always your profit that falls through the floor. When we were growing in UK and Europe, I realized we need to open in America. Like it's the hot market. It's growing. We need to be there as quickly as possible. And at that time, unfortunately, I was going for a divorce and we were just very, very cash tight. So again, it's kind of like you've got to have some creative thinking sometimes. So we actually did a scheme where I said to the company, if you invest some of your money into the business, I will give you some sweet XT. They're like some very small amount of XT. But I will give you a guaranteed 8% return on your effect to be loan that you're going to make me at 8% per year for three years because the business is growing quicker than 8%. It's like an average 30%. So I really knew that I could beat that. But they're probably getting like half percent in a bank or whatever. But the deal was, it's going to be like a three year bond. So you can have the money out whenever you want. But in that three years, but if you take it out, you get it back without the interest to fund the launch of New York. Yeah. And I got 250K from staff. That's cool. And paid for the New York office. And what worked beautifully about it was quite often people wanted the money back at some point after a year or whatever. And they just forfeited the interest. A few people obviously left along the way and they just got their money back without the interest. So you ended up with getting an interest for your loan from a lot of the staff. But then the people with that stayed and got that 8% 8% we'd get a massive check at the end of the three years and have a bit of sweet XT as well. And then we did it again. So we just did another investment round. We've got another couple of hundred grand from staff. The business almost became self-funded by everyone who worked for it as well. Because everyone believed in it so much. I think that's a really cool example that collective think. And then also you being creative with the problem solving, I think a good example of this scheme. Yeah, as far as just part of the journey, you've got you've got to just come up with different ideas. You're getting issues. And it's always like this is our biggest issue. How do you get around it? Yeah. Probably I learned university. I didn't engineering degree. Civil engineering. And it was always how you get for me to be. It's never like you can't do it. Like it's just trying to work how to do it. We'll get back to the episode in just a moment. 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Get started with Atlas today and unlock your exclusive Recruitment Mentals podcast listener offer at recruitwithatlas.com/recruitmentmentourspodcast or just hit the link. All right, let's get back into the conversation. - Let's get into some of the mechanics of this area T 'cause I know people would be interested in this. So firstly, give us a thought process on why was five million the number? Firstly, I know we didn't do that number, but why did you believe five million was the number on exit planning so is that? - So just for I spoke to pipe actually firms and advisors, they all said that the kind of confidence of the low end of the market for recruitment companies are like one to two million EVAs, kind of four and three, hasn't like because it means they're quite a small business, they're quite fragile, they're probably quite reliant on their owners and leaders. And again, it goes back to my point of, if a hundred people stay together and get an EVA into a certain level, they'll be worth a lot of money. But if a hundred people all start doing individual businesses, they'll be worth nothing. I might not ever be worth anything because it's quite hard to get past once two million EVA. So basically once you get to four or five million EVA, you tend to get higher multiples on your EVA and you'll consider it a more robust business. - What would have been on the slides in turn there was a what four or five X? - At five plus multiple, you can get like six to eight. - Okay, that was what you'd say multiple. - So we actually sold at eight multiple. - What did the actual journey look like in terms of obviously ended up doing an employee-owned trust model? But did we come close to doing a private equity deal? Did we come close? Was there anyone interested in buying LHI 'cause they're the other routes typically, right? Private, obviously you got MBO, but you could also say, employee could be like an element of an MBO, right? But and then you got trade sales, anyone interested? Do you come close to that? Tell us a bit around the road of ending up on the EOTP. - So I was always quite good that four or five million, I was always getting emails from companies saying we're interested in union different things. I just almost like didn't even open them or didn't reply to them 'cause I was just obsessed with getting to five million first. I'm quite a person that you say goal one thing. I'll wait till I hit that goal to then start assessing the next step. Otherwise, I think you can end up getting too distracted. Once you hit five million, we were then signed to think about how we're going to sell and start to do this. And private activities probably the easiest, well, was when the easiest way to sell in a recruitment company 'cause like private activity will be always interest in the fast growing recruitment business because they have money from pensions or whatever, they have to invest and they have to have like a three or five year cycle. But I was always petrified in private activity because from everything I heard was, A, they do a huge amount of due diligence. Yeah, it could be like six months worth of due diligence. And that's like really disruptive to your business. They're going through every contract, they're looking at everything. And quite often they then use that as a way to chip at you last moment of price and things like that. And then also with private activity, just horror stories that they come into businesses, they make brutally cold decisions. Like let's just ax them and ax them. And there's like no loyalty to anyone. They just literally all they care about is their shareholders, their investors, and looking at the business fate analytically. So then consider it at all. Do you not pitch the business to any private activity funds? So I was starting to think about it, but no, I didn't. So I was like, what other options are there? And it's actually Ed, my CFO and James, my chairman, who was speaking to Grant Thornton. And Grant Thornton, the partner of Grant Thornton came to us a presentation and she said about the employee ownership trust. And I had just never even heard of this before. She said, it's only been done a handful of times in the recruitment industry. It's like four at the time or something like that. It's effectively like a bit like an MBA. Going to borrow money from the bank. The bank was HSPC with us. We're going to value the business. You get it cleared by HMRC. You do your own due diligence. You pay a company to do your due diligence. So it's a lot of third party. Yeah, a third party. But you're paying them. So it's due diligence, but it's nothing like the private due diligence. And then effectively your staff are buying a company off you. It's going to an employee ownership trust. And you get it tax-free. And I was like, you have me a lot of. (laughing) Like, yeah, your death in taxes is the sure things in life, right? So who is this person who's great? You said Gratisaro, who's. Gratisaro. I don't know who that is. Say they're like one of the big accounts you found. So they told you about this is one of the mechanisms or one of the things that you could do. Yeah. And it always seemed a bit too good to be true. And I speak about three with my chairman, Ed's my CFA. He's way brighter than me. And he, again, does research. And it all came back as like, no, this is the legit kind of thing. And it just felt like it was perfect. You know what, Ethan? So I wasn't saying five XT, the staff are effectively inheriting the company. We will get paid out on our money. On paper, we will get paid out and then lend it back to the business. So we lent 80% of what we got paid out back to the business as loan rates. But the staff are effectively inheriting the business. I mean, that definitely matches up with equity team. Yeah, that. So basically, you come across it during this presentation, would like, but never even thought considered it before. I don't need, I think, if you were to say that I don't need to have the John Lewis, I feel like growing up. But interestingly, after we did that, then a few people followed seats. So Simon the Foss, who's a friend of mine, he spoke to me and LaFos did like, probably the same deal as us. I think even the same partner from Grant Torrentino just sent me the number. They speech this kind of, just thought, yeah. But it was amazing, like I say. But the government were doing this, no tax because they wanted to encourage employees to inherit businesses rather than the private XE firms getting them and the sort of the fat cats getting richer. So that's why they did it. I think they've actually changed the tax rules now. I think it's-- This is not a financial progress after fact check it. But when you say tax free, basically, there was no capital gains tax lending due on, when the month you got your money, basically. But now I think that's 50%. That's been half-- It's just still good, so-- I don't know what capital gains is, about 24%, 20%. I think so, so it's getting about 14%, which isn't bad. Entrepreneurs relief is 10%. Again, this is not a financial progress. Don't cry really out. Don't do it. Chatchy be here. So I think it's a very good way to sell a business. Especially if it fits your sort of-- I think it would've come across it. It clearly is your values around. There's been so many moments where you've got that collective thinking, though, we're going here, be part of that 50% away. There's a lot of actions that point to-- it makes sense why you went down that reach. You know what I mean? I think it's sort of authentic to how you've tried to get to that point. A friend of mine sold his working business a similar time, a bit less, but he did do private XT. He got paid out in the whole lot. He had to pay tax in it. And his business, as a result, against five XT, has come a completely downhill. On mine, I only got a third upfront when he sold. And I keep getting chunks over time on the loan rates. If I don't fully understand that, that would be obvious. So when you've said loan notes-- Yeah. --just to help us understand-- So we sold 10 ebit and 8 more tools at 80 million. We sold 80% of the business. So we kept 20% between me and Star. So I got like 10% and Star I've got 10%. And 80% is owned by the employee ownership trust. 20% of 80 million is 60 million. So 64 million, effectively, was getting paid out to staff. But we boys 20 million of HSBC, 22 million. So 22 million max to get paid out to staff. So on paper, 22 million got paid out to staff. And over the 64 million, 42 million got lent back to the business. So on paper, we all got paid out. But we had to lend 62 million-- That's the loan loan stuff. --forces 2 million back to the business. And that's as loan notes. But we all got 8% interest on those loan notes. So what does that mean? So then-- So then those loan notes get paid out over time. So we have to pay HSBC back. The money we have was just 20 million. And we're only allowed to pay loan notes when we're above a 10 million, either. We've been doing, we've been trading about 12 and 1/2 million ebit. But year for last, we dipped a bit. So like 9 million for a year. So we just didn't pay loan notes that year. But then we started paying them again. So when you say you could get in chunks, that's the-- --would you be able to get loan notes? Yeah. So it's like, I got my money. So you've got 40 million. You like kept 10, 12 million in your bank. And you lent back to the company, 30 million. Right, I got it. And that interest-- OK, that makes sense. So the disadvantages doing that, compared to 5xc, is if a business went bust, it went peak-tong. You might not-- I'm thinking of the 440. You might not get where is your other mate could have got. Yeah. You even walked where the 440. If you believe in the business and robustness, it will end up not only paying out more than my mate got in 5xc, but more tax efficient as well as a way more. But then you also, I kept 10%. So if we sell again, we get another chunk. Like, say, the whole way we structure the business is for succession, good leadership. Yeah, that's definitely the core part, isn't it? Not above or above, like, who or whatever, but I think this really is what is called about this story is the fact that, like we said, there's a lot of people out there, not industry, who have had that carrot of equity, like we said, doesn't mean anything unless you get to some sort of event like we're talking about. Yeah. But I know you've said one of the best things about this has been then people sharing with you how much that lump sum they also got changed their life. Because we're talking here, I know a handful of people sharing me got 4 million, a number of people got seven figures, bunch of people got six figures. That is large sums of money, right? And that is the thing about this. I think it's like about the top five all got about 4 million each. That's like incredible. Then the top 10 all got like a million each. And then there's like 60 people got six figures. And when we saw it, it was really cool. Because we lied a bit to start to be in a good way then. It's been like with kids, when you're trying to give them some good news and you want to hang out even more. So I took Mike out and Jim, Mike Box. Mike Box wasn't C.A. then he was like a director of London or whatever. He had a significant percentage of the business. And we told him we were selling. for 40 million. So we're having dinner. He's like really happy. Me and Jim said actually, my dream, we didn't sell 40 million. And he was like, what, like, you know, like I like almost pissed off that we've like had him like thinking about getting a couple of million out of the business and what he's going to spend it on it. And I was like, yeah, we didn't sell 40 million. We saw for 80 million. And then he just actually started crying. And then he's going to kill me after watching this. He's an emotional guy. And then he was like, I don't know if we've seen the film Jamie McGuire where that guy at the end is like crying. And he says, I want to speak to my agent. Then he is like, on the phone to his wife, we sold for 80 million. And then when the staff found out, he told all the staff, the amount of messages I got on my phone, I've kept them all in an album because it really was it for me was it was just heartfelt. You've changed my life. We've done this, picture of people with their kids going, I've now got the money to be able to give him an education. And it was kind of stuff. And I like, for me, that was as much a part of it as getting the money myself. Yeah, 100%. From what I understood, you engaged the third party, but it's, I guess, not going to be as stringent potentially as private equity, but it still has to be farer proper for you to have like an agreed valuation, right? But who gives the valuation? Like, have you got to meet the employers or whoever's involved to be like, this is what, because you could also be difficult on that potentially, right? But this is the only thing I never quite got. Okay. So it's like, put more if I see a phone. You should get him on next. Okay. Go, go, go for the whole whole. But basically, you do the due diligence. You pay for that. And that's completely separate to that's not a value in the company. It's just doing due diligence saying that you're legally trading or doing anything dodgy, you're checking all your plunge racks, blah, blah, blah. And obviously private equity because they're putting in like 80 million of money, they're going to get you like to town on that in terms of the actual value. You're agreeing with HMRC and HMRC got to sign it off. Right. So Grant looks like PWC or Deloitte's or like a bigger council firm, they value your company, what they think it's worth compared to, what are the income companies have sold in the market? And what they think you are actually worth. And they submit to HMRC, then HMRC sign it off. So when they first told me, well, they said, right, you're doing 10 million a bit. Yes. It's like, yes. And we're going to give you a six to seven multiple to value at 60 million to 70 million. And I was like, hmm, go for eight multiple. And they're like, yeah, right. We'll do eight. So we'll try eight. See what they say. I was like, yeah. And I was like, I'm going to get off of it. I remember saying, and I said, well, I just say 10. But then they went to HMRC. I think it was like pushback and they went back and forth a little bit. But then they they quite quickly agreed on the eight multiple 10 million even. Because it'd been pointless to have a crazy valuation which then would be really half of the improves to pay back. Yeah. But also is the same instance. If the value is too high, it's overly high. And you boy, you just have so much debt. Yeah. So that's why it's got to be fair. Yeah. Okay. Because I know that's what people would be interested because that is what if you were to Google the differences or whatever that is. One of them is that the valuation piece is different. So we're gunning now to try and get to 15, 20 million even in the next couple of years. And then do that another sell. So again, people will cash in again. NHI without playing the spake at my nose because it's not as is everyone's simply because there's that period where we did play 10 million a year for a year. And the Linux didn't come and people say, oh, you nervous, like, especially on building this house here. And I'm getting balls into other things. And I was like, no, because like, LHIs an amazing business. It's just a figure out. Really strong business. It's hedged in multiple layers. It's hedged in multiple locations. We've got great leadership. We've got an XE scheme that's pushing everyone to push the company forward. It's always going to come good. Ben and Mike are amazing as KCEO. And I think that's come to fruition because Jim was a senior hire. I bought in. He's a great job of CEO. But it's nice to have two people joined as graduates come all the way through TCA. And again, it's such a good story for anyone joining. Yeah. So it's a really good spot. I think the employee ancient trust is perfect for us. It feels like you've almost like watched your kids graduate and then get a trust fund. Can you help us understand the thing you shared with me? And I went through this with Ben and Botty. But as we're going through it here, it's from what I understand. So you've had two chunks of the full pot that you would essentially get if you saw the product and got it from that. So what triggers that? Because that's what also that. Because now now we're trying to then trigger another piece, right? But what triggers that? It's just the evit. So we just need to be trading above a 10 million evit. We're sure again now. So we're going to start loan payments again from January. And that'll be going every six months. Lend it chunks until that next third is paid out. And then once that next third is paid out, then all the debt in the business is gone. We can resell again. Right. I mean, we can resell anyway. Now, but we just got a debt that will come off the value. Yeah. But it's still worth a lot of money. I mean, I think this year we'll be trading about 12 and a half million evit at the end of the year. So you're still looking at 100 million evaluation and business. But I hope you're going to get to 15, 20 million valuation over the next sort of 12, 24 months. Was it from that first worth creation event that you then was very much your time was like a tender board meeting? I've always been all in or all out. And I think when I stepped away as CEO, I generally stepped away as CEO. I didn't do anything half-hastily where if you're trying to keep control and make all the decisions, you're not lessing a new CEO, make their own decisions and flourish. So when I stepped away as CEO, I very much left Jim to the day say, running. And I just attended monthly board meetings, which I still do. So I still understood the biggest shareholder in the business. So I still attend a monthly board meeting. And if I think they're doing a thing mental, I'll say, but generally I'm trusting them because a lot of board meetings are about staff, new areas, things like that. And a team of much more here on the ground than me. It's almost like they're telling me this is the best area we think we're going to open a new brand. And I'll be like, okay, it gave for the reasons. And they'll say, why? And this is strategically what we're trying to do on our GP and evit because we're trying to hit a 20 million evit say next year. So we're suppressing it this year to grade GP harder than we're going to affect due to evit when we give for a sell. These kind of conversations. Well, jump back into the episode in just a moment. But first, I want to shine a light on our partners, raise. Who in my opinion are one of the most powerful ways to fund and run your contract book, raise work with hundreds of agencies across the UK and US from ambitious solar recruiters to fast scaling teams. They ultimately help you unlock cash flow, remove admin headaches and make sure contractors get paid on time every time. So you can stay focused on doing deals and growing your business. Today, I'm joined by Dan Mills from Hire, who's going to share how raise has supported his journey and the impact it's had on his growth. Just a few words for Steven, the team at raise as a tight Yorkshireman spending money on anything causes me internal turmoil, but it's one of the few bills I actually don't mind business, partly because whenever we watch out, please help at the silly o'clock and whatever time is usually met with a really quick fix and a laugh from just genuinely nice people you want to help. The guys have been instrumental in helping hire build our contract book today and the generally can't thank them all enough. So as you just heard, raise aren't just another finance provider. They're a genuine growth partner behind some of the most exciting recruitment agencies out there. If you want to scale your contract book with confidence, keep more of your margin and give your contractors a first class experience, I'd really recommend checking them out. You can book a demo with raise and mention the recruitment mental support cast to get 50% off your first month. Hit the link in the show notes or go straight to raisetech.io/rmp. People outside looking in potentially on your business would have maybe seen this big growth journey going into the COVID period because I know there was some really good decision made and I think Jim was CEO. I think a lot of companies would have grown through that period because there's so much demand. Crimin if I'm wrong here, but going into that period was your business hovering around what, three, five million ebit. I don't know, going into that COVID period, yeah, around there. I don't know exactly what if we had to have a graph if it just carried on going up and right, but then obviously I had this huge growth hockey stick. Like a lot of people did, but then I know you spoke about on the poor development body where okay, you had the year where it did slightly dead, but then we're now back and absolutely smashing it. But I think the bit that people would be interested in or what they would be curious about is like how you maintain that ebit, that performance. I think that's where a lot of companies didn't, right? They had that huge demand and then it went back to whatever, whereas it seemed like you guys got there and then maintained that. Is there anything that, I know you wasn't as involved, but obviously would have been close to it. Is there anything that really stands out to you there that I think the key thing for us is we've been very good at keeping our and developing a really big middle management level where you can take away like if the market's bad, if you had to let go of consultants, things like that, and then underperforming then it keeps your ebit high because they're not causing you a loss. But as long as you're holding on to that management level, then you can like quickly scale again as the markets move. I think it's quite robust. We're in multiple locations, we're in Germany, US, England, we do quite a lot across Europe, and we've got multiple brands. We were very good at moving staff from brand to brand. I think if I look at some companies where they only do life sciences, they only do this. Can be an advantage in a sale where if that market's really hot, someone might pay a premium for you, but I don't think it's for me, it's not very robust and resilient. Just so you rely on that market in a recruitment, even if you're the best recruiter in the world, and your market is dying of death for whatever reason, it's going to be pretty hard to make any money. Yeah, I'm not in the process of that. I think the other thing as well from outside looking in would be I feel like you've always had that entry level model. So we've really, really created a a very strong academy, like we put so much money in time. to developing the LHI way and how we do it. If you look at Manchester United on Alex Ferguson, I always thought he was the best leader ever, where it's a bit like a recruitment company. When your first came in, it was like adding your senior like a Ronaldo or whatever like to bring in, but he was cultivating this academy in the background. I was bringing through the Beckham, the Skoles, the gigs, the butts, the SoulShare, all those kind of players that came from the academy, and they became like the super loyal, super hungry Manchester United did I die type, and the same with LHI, so it was very much LHI to die, and we had this amazing hub of graduates always coming through, and we still have that, so even this year we've hired 50 graduates. I remember what you're saying, I think that's on the ground, because a lot of people go the other way, and then they don't have that whole next layer of. It's reciprocal, because then people come with different ways of working, and it's hard to get a consistent way of working across the business, if you keep hiring just seniors. I think you do have to supplement with some seniors, but as you develop that academy like we did, we now hardly ever hire seniors, school graduates, like 8, 28%, yeah, I know you still very much tend board meeting, but you've had a lot more exposure to other recruitment companies. Yeah, so if I'm a founder right now listening, I've got 20 staff, the caveat is I've got real intentions to grow, like you have to have that, I think a lot of people don't really truly know what they want, and they may signal and say externally, I want this, but then the actions match up with it, so if I'm someone listening who I've got those intentions, I really buy into, I want my team, my employees to really benefit from this world of creation event getting there, versus it all being me, and I've got 20 staff, but I've got no equity scheme right now at all, like is it just follow the same playbook, create your own scheme where it really just rewards and incentivize performance, growth, is that what they just really needs to consider? You might have to shift the gears where you initially do it on set percentages, and then you move it into this bigger scheme. It's quite hard without seeing the business as an advisor, because each business will be different. The biggest thing I see in most recruitment businesses is they spend most of their time and energy just looking at consultant level, not leader level, trying to give the most commission to the consultants, which then doesn't leave them enough commission to then give to the middle management, they have little to no equity scheme in place, and they've got no vision, so if I go into most recruitment companies, speak to just an employee, say what's the plan for the company, they have five year plan, and they'll be like, I don't know, I was very specific on, we are looking at these numbers, we're looking to get there over this time, this is what means to achieve along the way, it's like super clear, everyone's completely into it, and it just amazes me the lack of vision, the lack of communication, the lack of anything that is bringing that vision to life through an actual scheme, or the way you intend to advise them, award your employees, and that focus on the leadership side, say, with Fairtay, for example, someone I advise, we're doing their first leadership conference in Austin, and suddenly you've got a leadership conference where it's all about growing your leaders, so when a graduate comes in front of you with them, instead of just saying like every other recruiter says, we pay the best commission, so you can earn, this is like our trip to Ibiza, this is what we did, yeah, well that kind of stuff, everyone says that, but it'll be like, this is our leadership conference, this is who you speak at it, this is who we flew everyone to Austin, it's only allows people to see a career pass just being a recruit consultant, it's like, again we come a creator, they come a leader, they come a director, you know, we've got like, I don't know, I think 15 people just in the last six months got the 10-year anniversary at LHI, you know, they've been really kind of growing through the business, we also rewards 10 years as well, and what are your 10-year targets, things like that, and again our 10-year targets actually fit in with our mobility, ethosate mobility thing is like, we're trying to get people into American hot markets by awarding them by bigger growth markets, they get more equity, but you're trying to get people to see it, so then just make a decision like, as you say, I'm going to move my whole life to New York without actually ever being there, so what we say on three years, 10-year, I love this one, is we give them the LHI passport, so basically on that anniversary they come into the office and it's a passport, LHI passport on the desk, and they can use that passport to work in any office in a group for a week, whenever they want, I'm always just pay for it, everything, so pay for their flights, accommodation, so inevitably everyone in the UK generally goes to Austin or LA or New York, and stuff like that, spend a week with the team there, they quite often come back saying, they want to move that. Yeah, that's cool. If we were to ball it down to try and make it simple for people is how great are you currently and how much better do you need to get out of that collective thinking, galvanising, everyone around where we're going and communicating that, because as you said, you've spoke to a lot of people where they just have no idea. The UK comes down to people, strategy, execution, and cash, and they all feed into each other, say, your strategy is like, we're trying to get to this value over this time, how do we do it, like what do we need to look like, and then the people side is, who do we need to get us there, how we're attracting them, how we're retaining them, and then you got the cash side is what cash means to generate, to get there and be making it on sale, which is really important. But then execution is one thing that a lot of people overlook and say the communication thing, like if you don't communicate well, and like, yeah, when we just give our XT units out, we'd give it on goal, belief, paper, make it look amazing and feel amazing, because again, if, yeah, I've been to some businesses where they've given out chunks of equity, but I haven't communicated very well, and people have got XT, they don't even know what they got or what it's worth. And I'm like, you've just given away chunks of your business, where if you did say, you'll get a million or two, less yourself, but the staff, then you understand what they've got, so it's like, you haven't executed at all. The journey that you've been on, there's been the LHI, I just think it is one of the core social criminal stories out there. I think it's just really cool to hear. I really enjoyed listening to you talk about how you didn't land on a perfect scheme straight away, because that was obviously pivotal, but that would just be really good for people to hear, maybe make some mistakes along the way, like we always do, right? But then you landed on something, crave thinking, and then that just really stark and sounds like massively changed things. I guess being open to love worlds could be due back to your sort of ethos values of 50% to the employees, which then makes sense why you wouldn't want to just sell to a private equity and they just rip out that 50% or what they have to do, you stumble across the EOT and it's like, actually, there's obviously benefits, but that matches again with the journey, what you've double down on, what you've always said. And then also, what I do really like about that is the fact that you're still betting on the company even though you've got your part, because that's how you get your full payout, right, is that the company keeps performing. So there's just so many things there, which I feel there's a real golden thread of team collective building into what we're doing. No doubt it's been absolutely fucking hard, but I think there's just so many things that match up. If you commit to that, then some really great things can happen. Well, the funny thing is, is 90% of the market just don't get it. Whenever I see this and I go to a conference, I'll speak to our customers, they're always talking about things like this new technology coming out, it's going to like, effect real equipment, different areas are getting into CRM systems, all this kind of stuff. And it just goes over my head, like, I just like, I don't care, like, what are you talking about? You're like, completely missing the point, because any business I advice, if you ask me what this is, the CRM system, what are the analytic tools they use? I have no idea. And people think that's weird. But the key thing is it is always, it's just vision, leadership, strategy, from a top level, communication. And it's all about that. And it's all roughly into one and how you maintain stuff, attract stuff, and bring that along into that vision. You don't need to worry about anything else. That is how to build a successful equipment company. And it sounds really easy. It's hard. But never lose sight of that vision. And everything that is falling off the back of that. Tom, it's been a pleasure. Thank you. That is a wrap for this week's episode. Thank you so much for spending time with me today. And if you've gotten value from this conversation or conversations in the past, we can see that a lot of you listen, but may not yet be subscribed, hit the subscribe button. 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