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In 1959, Chuck Soderholm Sr. worked as a sales rep in the hardware wholesale industry. With his fiercely independent nature and talent for sales, Chuck decided to branch out on his own. Taking the step to do so, he and a partner formed a sales agency in the plumbing and heating industry. Through focus and drive, the company eventually thrived. After some time, due to health issues of his partner, Chuck Sr. purchased 100% of the company and established Soderholm and Associates Incorporated (soderholmassociates.com).
All four of Chuck Sr’s sons— Chuck Soderholm, Jr., Bob, Mike, and Chris — have worked within the business over the years; three remain involved in the business today (Chuck Jr. and Bob being partially retired) while Mike went on to pursue a successful career on the manufacturing side of the industry. "The plumbing and heating industry is in our blood, and it remains a central part of our lives," says Chris Soderholm, the youngest of Chuck's sons and current president of Soderholm & Associates.
The manufacturers' representative firm focuses on the plumbing, HVAC and water treatment industries, and covers Minnesota, Wisconsin, North Dakota, South Dakota, Michigan's Upper Peninsula, and Iowa.
The Soderholms have always understood that success requires hard work and determination in serving their customers — wholesalers, contractors, mechanical engineers, and builders. "I would describe my father as a rugged individualist,” Chris Soderholm says. “Early in his career, he worked for a big corporation. With his entrepreneurial nature, he personally found the corporate world to be much too limiting - and was willing to risk everything to become independent and 100% accountable to his successes and failures." This motivation became the company's backbone, inspiring its team and eventually leading it to where it is today.
In 2001, Chris Soderholm took over the leadership of the company as its president. The company continued to expand— in territories covered and employee growth, customer service, and excellence within the channel.
"We have always been very much a family and extended family type of business," Soderholm says. "The culture of our business has always been one where I like to say people either stay for a very short time, or they spend their careers with us. Many of our employees have been with us for 20 to 30-plus years, and it's a key part of our company culture."
It's the sense of family that is the underlying "special sauce" that crosses over into all aspects of the business and drives its success. It's coupled with the company's core values: market influence for its partners and value for its customers.
"Our tagline is 'Market Influence and Customer Value,'” Soderholm explains. “What does that mean? The market influence piece is that, ultimately, it's our job to create influence in our market on behalf of our manufacturers’ and distributor partners — in concert with them. The value piece is to make sure that we're focused on investments and activities that add value for all of those players."
The company is hands-on when it comes to providing all the tools necessary for its team to succeed. Tools include developing training resources on products and services to providing immediate solutions for employees to interact with customers when a routine changer — such as COVID-19 — disrupts business.
When the pandemic reached U.S. shores, Soderholm & Associates’ response was swift because the firm had been making continual investments in the latest communication systems and infrastructure.
“The good news is the company had developed an IT infrastructure (along with a VOIP phone system) that made a working from home strategy seamless and quick to employ — largely as a result of the ESOP and the ability it gives us to invest in technology,” Chris Soderholm says. “Our largest expense on our P & L is our sales team. It was alarming to consider this group sidelined in their homes. Our concern was how do we stay connected with our customers when we can’t engage face to face with them? Our solution was to quickly establish a strong training cadence (virtual) with our various product lines, primarily targeting our wholesaler customer employees. At a time when our customer's employees had a lot of time on their hands, their management teams were generally very supportive in implementing these training schedules. We quickly developed and executed a comprehensive program, in some cases bringing in manufacturers to make virtual presentations.”
Soderholm relates to a conversation about the last 18 months he recently had with his father: "I was discussing with my dad the COVID-related “accelerated changes” in the rep business — and he has witnessed a lot of change in his career. We related to the fact that the one thing that's unique about our industry, and has never changed, is that the people have a unique dependency on one another. The industry partners who work together (contractors, engineers, wholesalers, manufacturers, reps) all depend on each other in a big way, even if our methods of communication may change over time. This reliance on one another is one of the key factors that continue to make this such a great industry.”
Company Succession – Is an ESOP an Option?
An ESOP (employee stock ownership plan) combines the employees' financial interests with those of the original shareholders so that teamwork and a long-range investment perspective toward the business are in everyone's self-interest.
"Our company culture is a group of people who sincerely care about each other and the health of the business," Soderholm says. With more than 45 employees focused on serving customers’ commercial, residential, decorative plumbing, HVAC, and PVF needs, along with other verticals, the firm stays in tune with its customers by providing the service and education needed to assist them in business and projects.
The company and its employees worked hard for the health of the organization — and it showed.
"Our employees were treated like employee-owners from the time my dad started the company,” Soderholm notes. “They have always acted like employee-owners, being genuinely concerned about the goodwill of the company and each other. Therefore, by definition, they share a deep feeling of responsibility to both our manufacturers and our customers. That is solid in our culture."
Those words would ring true as the company — in defining the next step of leadership — would look no further than its employees for a succession option.
Through the years of guiding the ship, Soderholm and his family worked close to remain faithful to their father's vision.
"I am very blessed to have been part of a family-owned business,” he says. “My brothers and I are very close, and we worked together for years through all kinds of challenges. Through good communication, we were able to work through challenges and situations, and the strength of a family company business is incredible. While we had different perspectives on how things should work, we could sit in a room, listen to each other, and form a consensus. Managing growth became a priority.”
As the company grew and expanded and the brothers were in their roles within the company and industry, they realized that the natural progression determined the next step: succession planning. What would that look like, and what was the natural progression?
"My brothers and I have a passion for the business and our place in it, but we were sensitive to the fact that, if our children are going to have a place in the company, it must be for the right reasons,” Soderholm explains. “They need to have an experience and education elsewhere to see if this industry is a passion of theirs — and this company cannot be a just fallback position."
The Soderholm brothers needed a succession plan to ensure the company had solid leadership behind it. To do that, they needed to attract young, talented people who could see a long-term future in the family rep firm.
”We recognized that the idea of putting a family member in the wrong places for the wrong reasons, not only is it harmful to the business, but it's also harmful to the family,” Soderholm says. They also understood that they needed more talent "in the queue."
Early on in his leadership role, Soderholm had a conversation with one of the company's key manufacturers.
"One of the first things they were asking us to talk about (and I've had this conversation many times since) is 'What is your succession plan?' While it didn't quite catch me off guard, it was one of those moments of ’Why are they so interested in that?’ Then it occurred to me that as a manufacturer, they are entrusting their resources to our company for the benefit of both our futures. So, succession planning is strategic for our future, but
it's our plans are equally critical to the manufacturer's future in our market.”
In 2014, the brothers and nephew Brian Soderholm (who is the company’s chief operating officer) started conversations on what the picture would look like. During a discussion with a rep at another company who had adopted an ESOP model, an ESOP became a viable option. They set out to fully understand the concepts, attended ESOP industry conferences, and had discussions with other employee-owned companies to hear their experiences.
"We started investigating more about an ESOP option to make sure that our culture could continue to thrive and that our employees would be well taken care of,” Soderholm says. “Our priorities as the principals of our agency have always been encapsulated in a line from my dad: ‘Take care of the company first, and the company will then take care of you.’"
He adds: "Forming an ESOP was a significant departure from where we had been, but it aligned with our priorities and our wishes to provide for those employees who had invested their careers in our business.”
Misconceptions and Reality
Soderholm explains the apprehension of an ESOP: "One of the key misconceptions of an ESOP is that if we sell the company to the employees, we are going to give up authority and decision-making ability. That is not at all true."
While explaining it to his father, as well as to the (then employees), he says: “This does not change who we are in any negative way. It doesn't change the nature of our governance, it doesn't change the nature of our executive leadership, nor does it change the nature of the input or the influence that an employee has in those conversations."
He adds that “ the ESOP allows us to create a long-term vision for the legacy of our business and the new company owners.”
While the initial discussion started in 2014, the process was set in motion and completed in 2016., "I talked to many individuals from other companies and The National Center of Employee Ownership Association (www.nceo.org),” Soderholm recalls. “The takeaways are two things: No. 1, if you're going to do an ESOP, you need to do it for the right reason. In other words, if your goal is to cash out of a company and make a transaction that just benefits you, as the owner of the business, it's probably not a good thing for the company.”
And No. 2, it needs to be done correctly. And that comes down to the employees — helping them understand the bottom-line effect to the business and to them as individuals.
"As an example
, we learned that if we have a 401(k) and a profit-sharing program in our company, by nature of an ESOP, we had the option to discontinue those programs as the ESOP will take its place,” he notes. “We felt that would be a bad thing to do, as the messaging to the employees could be that this was not a positive step for them — leading to suspicions of motives. We wanted to ensure that we could provide a clear (and honest) message that this would be a win-win on all fronts."
As all employees would now become owners (through a process of stock acquisition), the Soderholm family explained to them that they did not have to buy anything — ownership in the company would be gifted over time as they continued to contribute to the success of the organization — and nothing was being taken from them — the 401(k) and profit-sharing would continue.
"There was natural suspicion at first," Soderholm adds. "But if it's done for the right reasons, then the truth eventually shows itself, as it did in our case.”
"Behind the scenes (during an ESOP), it's such an exciting process of nothing really changes, yet everything changes,” he says. “Ultimately, it's not only for the survival but also the thriving of the company.”
Support in the Channel
Soderholm & Associates has been a long-standing member of The Association of Manufacturers' Representatives (AIM/R), where the company benefits from the association's guidance and resources.
As an active member, Chris Soderholm participates in the organization’s annual conference and is part of this year's convention — aptly titled "Mission Possible," taking place Sept. 28-Oct. 1 in San Diego.
In 2014, when Soderholm was going through the exploratory process of an ESOP, he was at an AIM/R conference and connected with another agency that had already chosen that path. This input was an essential part of their journey towards their ESOP conversion. He expounds on the networking and connections the association provides to its membership — and from member to member.
"We rely upon AIM/R —and a great benefit is the interaction with others who understand what we do because it's a unique world that we live in as a manufacturer rep, Soderholm explains. “The organization provides the opportunity to share best practices and understand what has worked for us, what hasn't worked for us, etc. We can connect with other agency principles and discuss critical issues with other non-competitive peers.”
He adds that the organization’s members are all-in to help each other succeed.
This year's event will feature a panel of manufacturers' representatives focused on succession planning, what that looked like for their companies, and the path they choose. Soderholm will explain the ESOP path taken by his company — and how it will help others choose their succession plan.
Make sure your succession plan doesn't sabotage who you are.