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Krazan & Associates: Building a Company of Owners
By Emily Meyertholen, Beyster Institute Staff
Employee-owned companies are different. They’re special. That becomes very clear after meeting members of these companies at employee ownership conferences and speaking with the Beyster Institute’s consulting clients. In general, the entire staff just cares more about the venture and about each other, and that often makes a critical difference in the company’s success. In fact, now when I encounter a business with exceptional service or employees who take pride in their work, I think to myself, “This seems like an employee-owned company.”
Employee ownership fit right into the “different” philosophy of Krazan Associates, which, since its founding 26 years ago, has steadily grown from its offices in Clovis, California to become a respected regional site-development engineering firm with national recognition.
As a recently unemployed engineer with little business knowledge, Tom Krazan, 34, convinced Dean Alexander, 24, to become a partner in his new venture by offering him half of the non-existent company. When they started, Tom asked Dean if he wanted 100 percent of a ma and pa grocery store or 10 percent of General Electric. Without hesitation, Dean said, “10 percent of GE.”
“That was the best business advice I ever got,” says Tom. “I immediately knew I had a smart partner.” With that, Krazan and Associates began with a focus on the concept of sharing and the acknowledgement that all people have value regardless of title or age. “At Krazan, everyone is your boss. This is a company of participants; no one is in the audience for long.” says Tom.
Today Krazan has 350 employees, a dozen offices throughout the western U.S. and over $35,000,000 in annual gross revenue. Krazan is known for its high-quality work and is listed in the Engineering News-Record’s top 500 U.S. engineering firms, but, as Tom says, “We provide nuts-and-bolts services, so there are unique opportunities for creativity in customer service and for us to stand out from the crowd. Most engineers think that business growth is based on excellence. I think they’re wrong. If you are not excellent in your trade you should not be in that business, but that is not the differentiation. In a service industry, the differentiation is intense customer service and the love of service. We are simply one of the best at that. And when you are on a winning team, everyone feels the excitement and takes pride in the high level of customer satisfaction we generate.”
A critical factor in catapulting Krazan’s growth has been its commitment to investing in people, knowledge and technology. Over the years the company has developed its own project management software, and it now boasts a level of detailed reporting and access to information that rivals that of many large U.S. corporations. With a client roster that has included Wal-Mart, K-Mart, Home Depot, Lowes, and many major public works departments, those capabilities can prove a smaller company’s worth – and earn its clients’ trust.
At Krazan, serving the client well starts with one-on-one interactions. For example, the person who answers the main phone line at the company’s headquarters is not the “receptionist,” but rather the “Director of Communications.” It’s not just a fancy title; Suzanne understands the customer base and connects that customer directly with the right person or offers an alternate form of service. “Most people hate voice mail,” says Tom. “We do too, so we always attempt to meet the client’s needs on the first call without them being aware of the superhuman efforts that may go on behind the scenes. People love calling our office because they always get a helpful response.”
With a company culture as strong and effective as Krazan’s, what can be done to ensure it continues beyond the founders’ retirement? That’s the question Tom began to ask himself when it was time to develop a succession plan.
“I noticed that other professional services firms seemed to live and die with the life cycle of the founder. When the founder retired, the firm eventually closed up. That is too bad for the remaining employees who worked so hard for that company. It became personal. I didn’t want that to happen to our people.”
About eight years ago, Tom and Dean began exploring employee ownership as a way to both provide an exit mechanism for Tom and to create significant tax advantages for the company. They started by establishing an employee stock ownership plan (ESOP) in 1999, to which they gave 6.5 percent of the company’s stock, held for the company’s employees.
That’s how things remained – until 2007, when Tom realized that he was finally ready to give up the active leadership of the firm and transition toward retirement. Tom and the company sought out the help of the Beyster Institute to advise on how to implement the ownership transition. Within a short time, financing had been arranged and the sale of stock by Tom to the ESOP was ready to close. With the acquisition of Tom’s stake in the company at year-end, the ESOP’s holdings have increased the share of employee ownership to 54 percent.
The company has been very open with employees about the ESOP from the beginning. “They liked the opportunity to own part of the company and to participate,” says Dean. “It’s their company, they earned it also. The government allows us to do this, and it benefits both the company and the employees.”
After the creation of the ESOP in 1999, Tom and Dean had begun an effort to give the company its own identity, separate and apart from founder Tom Krazan. “We wanted to transition philosophically to ‘Krazan’ not meaning Tom Krazan, but the whole organization – the company itself." Still, says Tom, the recent sale of his remaining stock to the ESOP was a big leap on a very personal level. “I don’t know how to describe it but to say I had to let go and move from lip service to a real action of trust,” says Tom. “It was like transitioning from being a dad to being a grandpa with really smart grandkids… a lot smarter than me.”
Having stepped down from day-to-day management of the business, Tom now has the freedom to become more of a public relations ambassador for Krazan, and will continue that role for about five more years, in addition to serving on the board of directors. Already, he sees the company doing better than ever.
“What an ESOP brings is a difference,” says Tom. “As a leader you learn how to be an appropriate and effective communicator by listening better. Employee-owners realize they do have opportunities to reach the next level; they do have control over their destiny. There are fresh thoughts and the people are really starting to step up. They realize the opportunity they’re going to have as the stock goes up. They stand tall, they make good business decisions. We’ve transitioned from a nice little service company to a junior powerhouse with new ideas and new energy.”
Tom says the company is still focused on growth, and he sees no end in sight. “We’ve been in a growth phase for 26 years. Three firms have approached us regarding a buyout, but the ESOP will put the skids on that for awhile. We’ve also been approached by a few venture capitalists. It generates a lot of excitement in the staff. When others see the value in this company’s stock, it reinforces that fact to the employee-owners and their families.” says Tom.
Having gained substantial business knowledge over his long career, and having now stepped back and evaluated the big picture, Tom says, “Krazan is one of the very best companies in the country and will continue to get better because its people are great thinkers and are committed to their collective success through a growing business. We’re a family of folks that really care, and everyone is allowed to be a little bossy with a smile. You know it’s working when it drives the HR department a little nuts because they can’t put a job description on it.”
©2008 The Beyster Institute and its authors and their entities. All rights reserved.
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