When business owners think about exiting their company, the conversation often centers around private equity, strategic buyers, or family succession. Yet for many founders—especially in franchising—those paths come with tradeoffs: loss of control, cultural disruption, pressure-filled earnouts, or a complete shift in the company’s identity.
In a recent episode of The Franchise Woman Podcast: Where Passion & Purpose Collide, hosts Rebecca Monet and Tracy Kawa welcomed Matt Middendorp, entrepreneur, former banker, and ESOP advisor, to discuss a lesser-known but highly effective alternative: Employee Stock Ownership Plans (ESOPs).
What unfolded was a candid, experience-driven conversation about legacy, leadership, employee engagement, and why ESOPs may be one of the most underutilized succession strategies available to franchise and business owners today.
What Is an ESOP—and Why Does It Matter?
An ESOP, or Employee Stock Ownership Plan, is a qualified retirement plan that allows employees to become beneficial owners of the company over time. In an ESOP transition, a trust is created to purchase shares of the business on behalf of employees. That trust then owns the company, while leadership often remains in place to run day-to-day operations.
As Matt explained, one of the most misunderstood aspects of ESOPs is control. Unlike many private equity transactions, sellers can remain actively involved in the business after the transition. In fact, many owners use ESOPs as a strategic, phased exit, positioning the business for long-term success while preparing to step away over several years rather than all at once.
This structure allows founders to protect what they’ve built—not just financially, but culturally.
The Cultural Advantage of Employee Ownership
Matt’s passion for ESOPs is rooted in personal experience. Early in his career, he worked for an employee-owned company while putting himself through college. What stood out to him wasn’t just compensation—it was the culture.
Employees cared deeply about their work. They understood how their actions impacted the business. Accountability, pride, and engagement were part of the day-to-day environment, not just words on a wall.
That same pattern shows up repeatedly in ESOP companies today. When employees have a financial stake in the business, behavior changes. Productivity increases. Retention improves. People think like owners because, in a very real sense, they are.
Research backs this up. ESOP companies tend to grow faster, experience higher productivity gains, and are less likely to lay off employees during economic downturns. Over time, employees also build significantly greater household wealth compared to workers in non-ESOP companies.
Financial Performance Without Sacrificing Values
One of the biggest myths around ESOPs is that owners must “give something up” financially to do the right thing for their employees. According to Matt, that simply isn’t true.
In many cases, ESOP sellers achieve equal or better after-tax returns compared to private equity deals. ESOPs also offer unique tax advantages, including strategies that allow sellers to defer or significantly reduce capital gains taxes.
Matt shared multiple real-world examples:
- Owners who prioritized maximizing return while still preserving their workforce
- Founders who wanted liquidity to pursue new ventures without abandoning their business
- Companies struggling to retain talent that used ESOPs as a competitive advantage in hiring and retention
In each case, the ESOP structure aligned financial success with long-term stability rather than short-term extraction.
ESOPs and the Franchise World
Franchising presents unique challenges when it comes to succession. While franchisors have limited control over how franchisees exit, they have a powerful opportunity to educate and influence owners early.
Introducing ESOPs as a legitimate option gives franchisees a path that:
- Rewards loyal employees
- Preserves brand culture
- Avoids disruptive ownership changes
- Keeps profits invested locally rather than extracted by outside investors
For multi-unit franchisees in particular, ESOPs can be a compelling strategy—especially for those who care deeply about their teams but don’t have a family successor ready or interested in taking over.
When Does an ESOP Make Sense?
ESOPs are not for every business. As Matt noted, companies must be healthy, profitable, and well-managed. Typically, ESOP candidates have:
- At least 15–20 employees
- Strong financial performance
- Leadership alignment
- A desire to think long-term rather than pursue a quick exit
Perhaps most importantly, ESOPs work best for owners who care about what happens after they leave. Those who value people, culture, and community often find that employee ownership aligns naturally with their personal and professional values.
A Different Way to Think About Exiting
For many founders, selling a business is one of the most emotional decisions they’ll ever make. It’s not just a transaction—it’s the end of something deeply personal.
ESOPs offer an alternative narrative.
Instead of asking, “Who will buy my business?” owners can ask, “Who helped me build it—and how can I reward them?”
As this episode made clear, ESOPs are not just a financial tool. They are a leadership decision. One that prioritizes stewardship over extraction, continuity over disruption, and legacy over liquidation.
For franchise and business owners exploring what’s next, ESOPs deserve a serious seat at the table.