When SEO and marketing company Conductor sold to WeWork in March 2018, Conductor’s executives and employees owned around 9% of the company, which had about $28 million in revenue. To make its mission a reality, Conductor needed more funding, which meant more dilution, CEO Seth Besmertnik tells TechCrunch.
That’s when WeWork came along and offered Conductor as much money as it wanted to grow, along with an unconstrained, autonomous environment.
“So they said we were basically going to have a lot more upside and a lot more ownership, and there weren’t really a lot of strings attached to it, other than making WeWork really good at doing organic marketing,” Besmertnik says.
The deal closed and Conductor went on to have a phenomenal rest of 2018, Besmertnik says. Last year, however, Conductor began to realize being part of WeWork wasn’t serving them.
“There turned out to be no synergies,” he says. “All of the efforts we made to do integration and have them sell our product and integrate into their platform — none of them happened and there was no plan for that to happen. On top of that, all we were really getting from WeWork was money but we had no board, we had no governance. We actually didn’t own any equity in Conductor, so no matter what we did as a company, it wasn’t tied to our compensation. More importantly, WeWork was pretty clear that they didn’t care how well we did or if we grew the business. It didn’t matter to them. This was demotivating and ultimately it became difficult to run the company.”
That’s when Besmertnik started exploring how to spin out Conductor from WeWork.
The plan was to kick off a formal process after WeWork’s IPO. WeWork had filed its IPO paperwork in August, but ultimately canceled it the following month, shortly after former CEO Adam Neumann was ousted.
“When things started to go south for WeWork with their IPO, it started to become [for WeWork] more of like how do we cut costs,” Besmertnik says. “I was the first guy there with an offer to take the business and all of the employees and all of the expenses.”
He submitted the offer on September 13, a few days before Neumann’s ouster. After the WeWork CEO’s departure, news hit the streets that Conductor was up for sale.
“That’s when all chaos ensued,” Besmertnik says. “We ended up working through a very difficult process… It was a dream that we always had that we would own the company and we gave a huge amount of ownership to all the people and now the company is almost entirely employee-owned. And now we have everything we want to go and make our mission a reality.”
Today, Conductor’s executives and more than 250 employees own about 90% of the company. And, more specifically, those employees are what Besmertnik calls “employee co-founders” who may appoint a representative to the board of directors.
“I want to be in an environment where we can all be owners in a company and participate in the good and bad,” Besmertnik says. “That was only made possible because of this situation.”
To be clear, Conductor is not a cooperative, where any profits generated are returned to the members or reinvested in the company, but it does have certain elements of one. Conductor’s founder-employees can make board appointments and hold a much larger stake in the company than they would if they were working at a traditional tech startup; as mentioned earlier, they enjoy majority ownership.
“I always encourage every entrepreneur that I interact with to round up and give as much equity as possible to the people in the company,” Besmertnik says. “The people who are creating the company and sacrificing their life and putting their head down — it’s very important not to take advantage of their naivety because a lot of people will work hard and they will give up salary and other things. But then they’ll realize they don’t really have that much stock or their stock options aren’t set up right so they’re not gonna really make any money. And I think it’s very easy to just take advantage of the altruistic nature of good people and the naivety of the average sort of worker in a company. So I think it’s the CEO and the founder and eventually the board’s responsibility to really do the right thing there.”
Conductor, which offers employees restricted stock units, also implemented springing rights in the voting agreement for all employee-shareholders. To ensure that workers always have a seat at the table, employees can elect an additional employee board director if their ownership ever falls below 50%.
“The main thing is, there’s a lot of stuff you can do to make equity better for employees,” Besmertnik says. “This is worth the effort to do that.”
As part of Conductor’s people-first operations, the company created a working group that determines where and how to spend money allocated for benefits.
“What our benefits are and where we spend the money for people is all decided by the people,” says Besmertnik. “We also have an ethics committee that determines who is a good customer and who is not. So, do we work with a cigarette company, or a political company or a gun company or a religious organization? I didn’t want to be the guy that arbitrarily says who’s good and who’s bad, but people do care about this a lot. Anything that’s subjective goes through this group.”
That was something Besmertnik says he had always wanted to do but had been unable to achieve. Because of the way the company is set up, as Conductor grows, so do the ethics and benefits committee in terms of funding resources.
“So it’s all within everyone’s control,” Besmertnik says. “If you want more benefits, well, let’s grow the company. CEOs and heads of HR shouldn’t be deciding how much money gets spent on food versus medical and other benefits. If everybody wants to donate money to charity, that’s what they should do, or if people want lunch everyday or if everybody wants to have tuition reimbursement, let the people decide.”