It’s a question Robin Smith and Will Mitchell, founders of Glaswegian based product design and engineering consultancy 4c, have asked themselves since they set up the business 18 years ago. “For us at 4c, we’ve always liked the relatively nimble, agile size of 8 to 12 people,” says Smith. “ I feel that’s the sweet spot, where if you’ve got the right people you can deliver massive capability, punch above your weight and be most profitable.”
But whilst they knew this was the size they wanted to maintain, Smith and Mitchell recognised the limitations this brought to their team.
“One of the challenges of a small company that wants to stay small, nimble and creative, is there is nowhere for your staff to go in terms of career progression,” says Smith. That’s why the employee-owned business model 4c has introduced isn’t fashioned on simply being a financial ‘perk’ for staff. The real motivation behind it is the creation of a career path for 4c’s people, a mechanism to keep their skills within the business, whilst also enabling the development of a valuable intellectual property portfolio.
At 4c, there is complete freedom for people who are ambitious in the company and have an idea they want to take forward, because the innovative model allows staff to set up spin-out businesses. “The idea is that you can create your own spin-out business, with your own product, your own business model, and 4c will support you as much as it can through that transition,” says Smith. “Ultimately, what we encourage and want is that staff with entrepreneurial vision will be able to be the manager of their own business if they decide to pursue that path.”
It speaks volumes, that since the scheme was introduced five years ago, not a single member of staff has left the business. “Being a good designer or design engineer, is thinking about who the person at the heart of what you’re doing is”, says Smith. “If you can design good products for other people, then treat your business as a product and think about how you would design it to suit your own people.
This approach isn’t for the faint hearted though. It’s taken time, investment and drive to bring it to fruition. 4c’s route in was through the Co-operative Development Scotland. The Scottish Government have been promoting this way of working for about ten years now and HMRC also offer big incentives to help move a business to this model as well. 4c wanted to make sure they were HMRC compliant, so when it came to implementation, they approached and worked with the Baxi Partnership, which is a specialist in this area, to ensure their employee-owned model was on point.
The 4c Trust was founded and a specific number of shares were created. At the moment Smith and Mitchell remain the majority owners but 25% of the shares were sold into The 4c Trust, to sit in a holding pen. Employees have access to those shares, but importantly this isn’t a gift or a bonus: all staff have the option to buy 4c shares. “The philosophy employees had to get their head around is that this is an investment,” says Smith. “They could go off and use that money to buy Apple or Tesla shares, but instead they are choosing to buy shares in the company they work in, which in turn gives them a direct influence over what that share price can look like.”
It’s a completely open, transparent and fair system. Everyone has access to the same amount of shares each year and it works through a salary sacrifice scheme. You can choose anywhere between £10 and £150 a month and there’s no PAYE and NI to pay on that. The scheme has proven so popular that 4c had to cap the annual share limits for current staff to allow enough for new starters to have the opportunity to buy shares. And one rule is that new employees need to be with 4c for at least 18 months before they can access the share scheme.
One of the real benefits of moving to this employee-owned model has been the discipline it’s brought to financial processes and the business itself. The company now has open book accounting so there are no secrets. “You really need to be much more open with your staff around how you’re doing,” Smith highlights. “Staff feel much more empowered. If they see that sales are a bit tight for coming months, then they start to think ‘what can I do to change that and to help?” he adds. Through this openness, 4c’s team is also learning and absorbing business practices and acumen themselves, which in turn they can bring to their own spin-out projects, such as S’up a spoon for people with shaky hands developed by 4c’s lead designer Mark Penver.
4c also now holds an AGM. Each year Smith and Mitchell stand up in front of their shareholders – their staff – and justify the strategy for the next year and where money will be spent. The AGM also includes the ‘big reveal’ – obligatory drum roll included – on where the share price stands for that year. The share price is calculated annually and “everyone is motivated by driving the share price up,” says Smith, “and that motivation can only enhance the team’s approach to client work and relationships too.”
4c are still learning. And there are still challenges to manage in terms of balancing spin-out work with the core business. But, says Smith “Every company has down time. What do you do in that time? You can go and get training, renovate the office, do the website, write up a case study. But what I wanted to do was to encourage my people to use that time to explore their own entrepreneurial ambitions.”
And how do the rest of the team view that? “I like to feel we all benefit,” says Smith, “because we all recognise that if we support each other’s new ventures whilst they are in start-up mode, as a team we are going see the benefits of that start up business in the future, with additional revenue over and above the traditional model coming into the business and to us, the shareholders. If it fails, we all fail together. The risk is less and the rewards can be greater.”
Images supplied by 4c