People Over Payout: Why an ESOP Was This CEO's Ultimate Succession Strategy
Here's the deal: every successful business owner reaches a crossroads. You've poured your life into building something real, something that matters. Now, the time has come to consider succession. Private equity firms talk about taking chips off the table and the opportunity that a second bite of the apple presents. Strategic buyers make great offers, talk synergy, and what it means to be a part of their winning team.
For most, exiting to private equity or a strategic buyer feels like the only viable path.
But what if there's another option? A way to take chips off the table, protect your people, keep you in a leadership position and provide a path for the company you built to continue to thrive for decades?
I recently sat down with Rise Performance Group client, Ray Bailey, the founder of Lone Star Communications, for one of our Rise Growth Labs. After 34 years of building his company from a startup to a 280-employee powerhouse, he faced this exact decision. Instead of taking the traditional private equity path, he made a bold move: he sold the company to his employees through an Employee Stock Ownership Plan (ESOP).
His story is a masterclass in strategic succession, and it challenges everything you think you know about exiting your business.
Ray saw what happened to his peers who sold out. He watched too many great companies get rolled up, their long-time leaders replaced, and their core identity erased.
He wasn't going to let that happen to Lone Star Communications.
For Ray, it was never just about the money. It was about the people who had stood shoulder-to-shoulder with him in the trenches for decades. He didn’t want to see his team—his friends—disassembled and cast aside. The goal became clear: how do we keep this company, this culture, together for the long term? The answer he landed on was the ESOP.
Here’s a hard truth: An ESOP is not a magic wand. You can’t just hand over shares and expect an "ownership mindset" to appear. You have to build the foundation first. This is where the real work—the strategic work—begins.
For Lone Star, this meant getting serious about operational excellence years before the ESOP was even on the table. Like many founders, Ray initially resisted the idea of a coach. "We've been very successful so far," he lamented. "What do we need a coach for?"
But a coach isn’t there because you’re failing. A coach is there to help you see the things you can’t see, to force focus, and to hold you accountable to the strategy. Working with a coach and implementing the Scaling Up framework helped Ray’s team identify industry threats they hadn’t fully pieced together and transition the business from a small local integrator into a national software, training, and consulting firm.
They built their strategic engine using two key Scaling Up principles:
This simple tool has eliminated bottlenecks and has given employees the autonomy they craved, backed by the accountability the business required.
Let’s talk money. The biggest misconception about an ESOP is that it is expensive and you’re leaving money on the table.
Ray is quick to bust that myth.
The valuation process for an ESOP is just as rigorous as any M&A deal. You get independent valuations to ensure you’re getting fair market value. "When it all is said and done, at the end of the day, you're probably going to get pretty close to what you would get on the open market," Ray explained.
Here's the critical difference: With an ESOP, you maintain control.
PE firms offer a "second bite at the apple"—they buy a majority stake, keep you on for a few years to grow the company, and then you get a second payout when they sell it again. Ray structured his ESOP to achieve the same financial benefit without ceding control. He sold 30% of the company to the ESOP initially. In five years, when the company is worth significantly more, he’ll sell another tranche at that higher valuation.
He gets the financial upside of growth while ensuring the company’s destiny remains in the hands of the people who are building it.
Because Ray and his team did the hard work of building a scalable company with a clear strategy and an empowered leadership team, his role has transformed. He’s no longer needed in the quarterly planning meetings; his team runs them.
This has freed him up to focus on what he’s truly passionate about: the high-level strategy and growth of the company. He’s easing into retirement on his own terms, confident that the leaders he’s developed have the vision to carry the company forward.
Your succession plan is the ultimate test of the business you’ve built. Have you created something that can only run with you at the center? Or have you built a durable system with a leadership team ready to take the reins?
Stop thinking about your exit as a transaction. Start treating it as your final strategic act.
If you’re ready to build a company that not only scales but endures, the work starts now. Let’s talk about putting the systems in place to secure your company’s future—and your own.
