Ask any group of entrepreneurs and company founders why they decided to start a new business, and you’ll quickly hear a common answer: because they wanted to find a better way to make a living.
Most of us start out in life learning our trade through working for someone else, and fairly soon come to realise that a conventional business is more like a feudal system than a democracy. The contract is asymmetric in risk and reward. The employee gets the security of a regular paycheque while the owner both takes all the business risk and gets the upside in economic reward if successful. There is also the asymmetry in the power in the relationship. You know who is the boss and who is the employee – for better or for worse.
And after a few years working with that dynamic, it’s no wonder that people ask, “Is there another way to structure this?”
When we started Rockflow over a dozen years ago we set out to build a market leading company providing the highest technical and service quality. In order to deliver that level of professional service, we also had to hire the highest quality people. But when that kind of talent is already in high demand, how do you convince them to leave a well-paid corporate job to join a small start-up business?
The answer is to create a business that treats people how you want to be treated yourself – one that enshrines equality of opportunity, participation and treatment in its principles from day one. And so we built Rockflow as a mutually-owned company, encouraging all staff to become shareholders and take on a more equal share of the risks, responsibilities and rewards. We also set democracy at the heart of the company, with all management positions elected for a three-year term and all partners having an equal vote on business strategy, plans and budgets.
Looking back, here are some of the biggest lessons we’ve learned from choosing to run Rockflow a little differently to other firms.
1. Common ownership increases commitment, reduces staff turnover
A consulting company’s two biggest concerns are retaining your staff and retaining your clients.
Direct ownership immediately tackles that first concern. Staff with a share in the company feel a greater sense of allegiance and participation, and they have a long-term incentive to look after the firm’s interests. That in turn means they’re more likely to go the extra mile for clients – both fulfilling their immediate requirements and building long-term relationships – because looking after their interests is what best serves the company in the long run.
Clients also appreciate continuity, and it’s well known that if a good consultant moves on, the client is likely to follow them. Therefore staff retention is a key success factor for Rockflow, and it’s no surprise that we’ve seen a more stable business both client- and staff-wise by sharing ownership.
2. Common ownership increases company resilience
Rockflow works in a cyclical industry. The company was built to survive a downturn, and when we were truly tested in the Covid pandemic, the company passed through the crisis with flying colours and bounced back as the world recovered.
Two key design features enabled our survival: the low and flexible fixed cost base, and the focus on keeping the team together rather than shedding staff. Cutting staff to survive is often an inevitable move in a downturn, but it’s disruptive to lay people off and expensive to rehire them again later. Not to mention that lay-offs hardly help productivity and morale when it matters the most.
But in a co-owned business where staff retention is prioritised over maintaining incomes, staff are willing to accept temporary pay cuts to keep their job. Rockflow’s flexible pay structure not only pays off handsomely when times are good, but also helps keep the business more resilient in a downturn.
Rockflow’s model also inverts the age-old and dubious focus on maximising shareholder value and paying ever-increasing dividends. When you’re an employee-owned company as we are, you’re no longer at the financial mercy of fair weather temporary shareholders who might cut and run the moment things look rocky, and you’re better able to retain financial reserves to ensure survival.
3. Transparency increases trust and reduces politics
At some point, people working in large companies realise that much of staff management activities revolve around justifying who gets paid what, and how to manipulate or motivate people to work together so that the business owners and management can make even more money. You see large pay differentials between senior management and staff, and all sorts of disappointments resulting from annual staff appraisal programmes and arbitrary, opaque bonus schemes.
In Rockflow, pay is strictly performance based and transparent, with very clear and simple incentives. The model is designed to incentivise high quality, good value work with the aim of client satisfaction, paid invoices and repeat business.
Transparency is essential. All of the Rockflow shareholders have full access to all of the financial information, including everyone’s earnings. They know exactly what they need to do to earn a pay rise – go to the market and sell more work. Financial transparency increases trust, and virtually eliminates internal disputes, competition and office politics – and along with it, the time and energy lost on internal processes and friction that are commonplace in traditional companies. That makes Rockflow consultants more productive, better paid and improves job satisfaction.
4. Democracy improves decision making, but takes more time
We have seen the quote that “dogs have masters and cats have staff”. Well, managing a consulting company is often compared with trying to herd cats. That’s because many good consultants are free-thinking, independently-minded adults who like to make decisions for themselves. You have to give people freedom to get the best out of them, yet you need individuals to be collaborative team players too. You also have to respect that they like to be involved in decision-making, and not be told what’s happening by someone higher up.
Key strategic decisions with long term consequences typically require both the input and support of staff to ensure good decision quality and successful implementation. At Rockflow, all key decisions are taken consensually at our quarterly partner meetings. We have learnt that allowing time for all voices to be heard and divergent opinions valued leads to better decision making and wider support.
It takes more time to decide things when everyone has a voice and an equal vote, but over the years we have successfully steered our business through the ups and downs of the oil price cycle, changing government policy and the Covid pandemic. We have survived without crashing, unlike many others in the sector. We put it down to the benefits of democratic decision making.
It is sometimes hard to spend the extra time and effort to gain real consensus, but in our experience, it is much better than having disgruntled staff who feel “management” has imposed an unpopular decision on them that they don’t agree with. Despite its flaws, our experience is that democracy works better than autocracy in the long run.
5. Most people prefer security to risk
You need entrepreneurial spirit to start your own business. We all like to think we have that within us, but the truth is that risk aversion and loss aversion are stronger forces than we like to admit. They might want more incentivised rewards for their work or resent the percentage cut of their efforts taken by business owners, but when faced with the choice of retaining their guaranteed salary or risking it all for an uncertain reward, most people either choose the sure thing over the gamble or don’t have the capacity to take that leap.
Knowing this, when we started Rockflow, we not only had a group of founders who were natural risk takers and entrepreneurs – we wanted to also tempt would-be entrepreneurs, who perhaps had the desire but not the risk capacity to start up on their own to join us on an equal basis. Enshrined in our constitution is the mechanism for new people to join us and become an equal partner, with the same vote and rights of a founding partner. This is unusually generous for companies already established, but it is our way of attracting highly capable experts to exercise their inner entrepreneur.
6. Working for free doesn’t work
Entrepreneurs who start their own business often have to put in a lot of unpaid hours to get their business off the ground. That’s all part of living the dream, and at Rockflow we’ve done that too. But when we quickly established a profitable business, people always – perhaps obviously – preferred to spend their time on fee-earning billable work rather than constructing the corporate architecture, treading the streets to find new business or performing other corporate overhead tasks.
It makes sense – when people have the choice between paid and unpaid work, nine times out of ten they will choose to get paid. The challenge for us was how to keep the corporate overheads down so that we could afford to pay highly competitive fees to the technical staff performing the consulting work.
Consider marketing and sales. It’s time-consuming and doing it unpaid is seen as a chore, even if you are the one who might benefit from making a sale. But if it’s paid out of overheads, with little obvious measurable connection between your marketing work and its results, how do the partners know how much to pay you? And – if you are being paid for activity rather than results – there’s an incentive to charge the company for overhead work when you have no fee-paying work to get on with.
In traditional companies this easily leads to increasing management overhead costs, which in turn brings down pay and profits for staff and shareholders, and increases pay differentials. Excessive executive pay in major corporations is the inevitable result when absentee shareholders do not vote to constrain and control the overheads.
But in workers’ co-operatives where everyone is a direct and active shareholder, there is more incentive to “do your bit” for the team, and put in free time to build the company in the long term. There is also more democratic control over executive and overhead pay. Yes, you need to pay for necessary tasks to be done, but putting your pay to the vote of your peers is an excellent way to keep overhead costs down, and remuneration fair.
7. Do the right thing – reputation is everything
In consulting, as with most things in life, reputation is everything. A consultant must always be fully conscious that they work in the best interest of the client.
At Rockflow, this is hard-written into our constitution and strategy. Our core values are personal and corporate honesty and integrity. Our objective is always to deliver consistently excellent technical and service quality. And we seek to encourage a corporate culture which is collegiate, respectful, egalitarian and entrepreneurial, as these characteristics suit the calibre of staff we seek to attract.
This makes the expectations for every consultant’s performance crystal clear – in order to continue getting the work they want, they need to keep delivering the same level of excellence that their and our reputation is built on. There is nowhere to hide in an employee-owned company because everyone is exposed to both competition and business risk, and that exposure ensures that everyone upholds the standards that underpin Rockflow’s long-term success.
