Patrick & Kathy Terry (P. Terry's): "Why We Said No to $100M"

0:00I'll tell you it was between $70 and $100 million. And you turn it out. I bid turn. That is Patrick and Kathy Terry. 21 years ago, they opened a 500 square foot burger stand and Austin selling $1.60 hamburgers. When the offer came, they were rich on paper, but it felt like nothing. We took a little less than 10 million out. That's the only money we've ever taken out in all these years of Peters in 2021 years. Today, the business does between $150 and $200 million a year. And instead of selling it, they're giving it slowly and deliberately to their 1800 employees. There's no dollar amount, no dollar figure on relevancy. What this business has allowed us to do is feel significant, feel relevant. And love, why would anyone walk away from $100 million twice? I ask them everything. This is the whole conversation. In 2005, Patrick and Kathy Terry, who were married for three months at the time, opened a 500 square foot burger stand in South Austin. In the first year, they did about $600,000 in sales. Which was actually in the red after depreciation.

1:02Kathy didn't take a real salary for over a decade. Then in 2016, with 10 locations, a buyer offered them between $70 million. They turned it down, pulled out just under $10 million, the only money they've ever taken, and went back to work. Today, Pterys runs 37 company owned locations. Employees 1,800 people, and does between $150 and $200 million in revenue, growing over 20% a year. And now they're doing something fewer than 100 American companies have ever done, selling the whole thing to their employees. The conversations I get to have on this show are because of the hand in community. It's a private network of founders and CEOs doing on average $25 million a year, where conversations about what your business is worth and what enough actually means happen all the time. I just get to bring them out into the open. If that is your world, check it out at joinhanton.com. In today's episode, first, we're going to walk through the numbers. From $1.60 hamburger to the nine figure offer that they turned down, then we get into the machine they built, an employee ownership trust, 10 year-based profit sharing,

2:03and $900,000 in interest-free loans with almost zero defaults. And finally, the question underneath it all, how two people sitting next to $200 million in assets decided that $10 million and a mattering to 1,800 people was more important. This is MoneyWise. I'm Daniel Burke, here's Patrick and Kathy Terry. Welcome back to another episode of MoneyWise. Today, I have not one guest, but two guests, which is unorthodox and very exciting. I have Patrick and Kathy Terry, who I'm excited to learn from and to hear about some of their exciting business ventures, but also some unique perspectives of what they bring to the table and how they've built their business together. Kathy and Patrick, thank you so much for joining me on MoneyWise today. Thanks for having us. Yeah, thanks. Absolutely. I'm super excited. One of the start with Kathy. Kathy, could you kind of walk me through what it was like growing up in your household and what money was like, but also the entrepreneurial spirit,

3:06kind of what prompted you to want to be an entrepreneur with Patrick later in life? Oh gosh, okay, I hope I can condense this down. So I grew up in West Texas in small town, Midland. Both my parents, I guess what you would call entrepreneurs, but I didn't even know what that word was back then, but working class, my dad started an industrial laundry on his own when I was around seven. My mom was working at the newspaper, but then went on our own and started bookkeeping service. But from early age, all we did was work. You know, when I thought for the longest time in the summers and spring break that that's what you did, you worked. So I would work in the laundry or help my mom do books. And then for me, school was really not something when we talked about much growing up, but I figured everybody else was going to school, am I as well? I stayed in Midland because the community college there gave the school, it was free to go if you graduated from high school. So I stayed there for a year and finally escaped

4:07the second year and went a couple of hours down the road to a small state school, Angelo State. And just happened to be dating a guy and his sister said, you know, you really shouldn't be chasing my, you know, following my brother to A&M, go to UT and like make something of yourself, like do your own thing. So that really changed the trajectory of my life. I went to UT, ended up working at a law firm why I was at a UT. And when I graduated from UT with a counting degree, I didn't want to go into counting. So I stayed at the law firm and just got lucky met a woman who had kind of traveled the world. And I was like, who does this? Like I didn't even have a passport, didn't understand any of it. But she inspired me and so I switched law firms, was working at an IP firm, grinding and decided I was working, I was in between big cases. I worked on a lot of high tech cases, patent infringement litigation and took a six month leave

5:10absence and traveled around the world by myself for six months and came back and that's when I decided, you know, I'm gonna do my thing. I eventually quit and said, okay, you can hire me back tomorrow but at my rate. And so I gave myself a 500% raise over. There you go. And sorry, working on my own and was would hop, you know, from firm to firm and work on cases. So that was kind of when I got my entrepreneurial legs under me realizing that I had value, I just had to figure out where my value was. And then that's when I met Patrick. And Patrick has his own little, he started as an entrepreneur a lot, a lot younger than I did. But we'll get into it, but P-Terry's was definitely his vision, his thing and I just, yeah, I joke that it was his passion project but pretty early on it, it was gonna become our passion project. So. It sounds like maybe you or his passion,

6:10and then that was his passion project, right? And well, I'm sure we'll get to that. I know there's a priority list. That's a great story. And Patrick, I take it, you were an ad guy for quite a while before P-Terry's. So walk me through your story, how you grew up around whether an entrepreneur, a spirit or business mindedness, kind of what led to the P-Terry's vision. Well, I always had it. I was five years old and I had eliminated, I cool, they'd stand out front of my house and I was always the next deal where I was gonna put a little business I could start. I had a tennis camp when I was in high school and college. We traveled with, you know, 30 kids in rented bands. I was like 19 years old at the time running the camp. I had always had something going on. I loved the restaurant business for whatever reason, you know, it's sometimes hard to describe or define, but it's kind of in my blood.

7:12And so I had had a couple of pizza places. I've just done a lot of different things. But after college, I did go into advertising and I worked for Tracy Lock BBDO and Dallas. And I was on big accounts, you know, Ben Hogan and Fridelae, Phil Spatrollium. And it kind of gave me an experience that I had never, you know, live with. You know, my dad ran a TV station in West Texas, not far from where Kathy grew up. And he clearly, on his own, running a TV station as an owner operator, he clearly had done, you know, that entrepreneurial project that he would, you know, that he would live in this career with. That would be how he ended his long career in broadcasting. But I got bored really fast. I was in advertising and I had a nine to five job and it wasn't fulfilling enough, even though I worked on some great accounts

8:12and around some great people. And they taught me a lot about presentation and about dress and and and client relationships. That was really beneficial to me. But I got bored. And so I opened up a pizza place at night, taking baked pizza place that I ran from five to 10 o'clock Monday through Friday and then I worked Saturday and Sunday all day. So I was working 80 hours a week, which prepares you for the restaurant industry. And so then, you know, I met Kathy. We actually met at a gym and I was stricken very quickly. And then we started dating and then I had always wanted to open up a hamburger stand. I loved the idea of burgers fries and milkshakes. Very simple, very easy for me to understand. And I think it's something most of us agree on. You and I can get into this ridiculous argument

9:14about how we want our pizza, New York style, Chicago style, Detroit style, not a lot of argument about hamburgers fries and drinks. And so I liked that idea. And location opened up and I sprung the news to Kathy a year after we'd been married. That would be three months. Three months. I'm glad you're both here because we would never have known. No, I wouldn't even think right over. And I, you know, and Kathy learned very quickly that all this talk that I had been saying all this time, there was something behind it. Because I talked a lot about it. Oh, yeah, I didn't think you'd ever do it. I just thought, oh, that's a cute idea. You know, oh, and then he did it. What was your initial reaction when Patrick came home and he said, hey, honey, no, we got married 90 days ago, but I have this crazy idea and there's a perfect spot for it. What was your initial reaction, Kathy? Oh, I thought, oh, cute. Okay, go, go for it. Yeah. I mean, I was, I literally was on a big case. I don't know if it was in DC.

10:15DC, you're in DC. And I would come home in the weekends and, you know, I'm a detailed girl. Like I like to get into the weeds. And so I would ask him all these questions. And he was, he had a friend and they were remodeling and, you know, hiring people off the streets, Zed out of them. Like out of green acres, if you can remember that TV show. We weren't getting much done. And so I kept asking questions. And then that's when I realized like, oh, shit, you have no idea. Like you have the vision was there. And it's always been there. Like, I can see you've been committed to this vision. But like the details and getting the, you know, doing it. And so once my case settled or ended whatever, then that's when I jumped in. It's be kind of, that was kind of the next three years of my life. What kind of peteries, yeah. So 2005, you opened it and tell me what revenue looked like that year. And then how was scaled from 20 or 2005 to 2026? No, 21,000. I'm gonna like have the answer to that.

11:16But I can tell you from my perspective, I just wanted to run the restaurant. And I wanted to do it my way. And I wasn't gonna worry about what money we were bringing in. I was at an age that I had, we had some money in the bank. So we weren't hand-to-mouth. And I just, I knew that if we, if we didn't look at the numbers, we stayed the course of what we wanted to do. Because we had a, we did know we wanted to serve high quality food at a really valuable, at a low price. We wanted to have a really great value. And I didn't want to be swayed by that. So you had the books. Yeah, I was doing the bookkeeping. And, and, you know, I just, I would, I mean, the first year, yeah, I mean, we went to money. Well, I mean, I looked at the numbers the other day. We didn't really make money that first year. And. So did you break even or was there a slight loss?

12:17We broke even, you know what, we broke. We were open six months. We were open six months. And we did, you know, when you start, yeah, actually we did. Is we didn't, at the end of the day, when you include depreciation, and you know, when you do all that, we were in the red. But we did, What were we talking about? I mean, a hundred K and revenue. Oh, no, we had like, what was it? What was the numbers? I just looked at it. It was over half a million. Yeah, it was like 600,000 the first. Awesome. And that was one location. One location. And then in the next year, what was it? This is a 500 square foot building. Okay. Oh, yeah. I threw in a walk up window. Basically like the room I'm in right now, but there's a door where you give someone a burger. And a hamburger was a $1.60. So you. Nice. I can get down with that. I can get down with that for sure. I wish I was one of your first customers back then. I mean, I think that the revenue is the first year were over a million. Yeah. Yeah. But I never like, I was the same way.

13:19Like I just was like, we just gotta keep our head down, right? Like we just gotta stay at it. Sure. But I remember distinctly, I would pay sales tax on the 20th of every month. And I remember that checks are getting bigger and bigger. And I'm like, oh crap, we're doing well. Like, if I keep having to pay more sales tax, that means something's good. Something good is happening. And so for me, that was kind of like my little marker that I didn't even realize. But we didn't open the second location until four years later. But Patrick actually was looking for a second location, but thank God we didn't get one. I mean, in hindsight, it was a gift not finding the second location. Kathy said they never networked. They never went to conferences. They never compared themselves to anyone. They just worked. And for 11 years, they had no idea what the business was worth. Hampton solves that exact problem. It's a private community of founders and CEOs running real companies. And the value is having peers who can tell you

14:20what your business is worth and what your options are before a private equity firm shows up to do it for you. These types of conversations happen every day inside Hampton. I get to bring some of them into the open. If you want to be in the room, go check out joinhampton.com and get a core group now. So that was 2009, the second location opened. Yes. And you were doing what in revenue at that point? We had to be doing close to 2 million. Yes. Yeah. Close to 2 million. OK. And so let's jump to 2015. How did it scale by then? And then 2020? And now, 2026. Well, the stores are, you know, they're all over the place. We have a store that will do $6 million in sales. And we have a store that will do 3 million in sales. So we're kind of all around the place. A lot of it has to do with the location and the size of the building and where we are. But we've also taken a different tact.

15:21Because we felt like in the last year and a half, as inflation was really creeping up and our costs were really creeping up. And we knew our customers were getting hit harder. That we actually went in different direction and did not increase our prices. And so you're still $1.60 for a burger? Well, no, that was a long time. OK. 21 years ago. $3.00. That's like Costco hot dog status right there. $3.10 for a hamburger. It's still a great price for a hamburger. And so our margins have gotten even tighter. But what we've decided to do is, you know, we've decided to grow the business. And we'll do it on the backs of lowering our margins. Right. And then what are, go ahead, Kathy. I was just going to include that first question. Like trying to take him back to 2015. Because you know the numbers. I mean, 2015, 2016, we actually were entertaining selling the business.

16:21And so you kind of did a dog and pony show and put together. And that was really eye opening, I think, for both of us. Because I think that was the first time we really realized the value of the business, to be honest, right? I mean, that you say. Oh, no, absolutely. You know, we don't, we don't network. We don't go to conferences. We really just keep our head down. And we don't really pay attention to what everyone else is doing. We've never had any real interest in that. We, it didn't really matter to us what everyone else is doing. We were going to do our own thing. So, and so all of a sudden, we got an opportunity to sell the business. And it was for a considerable amount. Enough, as we like to joke, to go live on an island. Yeah. And we learned that what we really wanted to know, or at least I did, I wanted to know how I was, you know, what my scorecard was. And when I found out that we were, we were doing pretty well,

17:25then we just went back to work. But I think I needed that affirmation. Yeah. And at the time that- And that offer in 2015, 2016, are you at Liberty to disclose that amount? I'll tell you was, it was between $70 million. And you turned it down? I did turn it out, yeah. Very interesting. We'll come back to that. I'm curious, what was the revenue that valued the business at $70 to $100 million in 2015? I'm going to say 10, 12 times sales. OK. I'm going to say so. Really healthy and how many locations at that point? I guess we're 11 years into the journey by then. 40, 10, 10 and 11. I think- It was number, actually, we had 10, cany. Well, what was capital? Time locations. That was 11, but- OK. Yeah, we were about to open our 11th store. So we had 10. Wow. Yeah. OK. And I want to come back to the acquisition story. How many locations do you have today in 2026?

18:27And what's your approximate revenue? 37. We don't really get it into the revenue. I'll say it's between 150 and 200 million. All right. So here they were in 2016. They had 10 locations. Someone offered them between $70 and $100 million. And they said, no. Today, there's 37 locations. And the business brings in the entire value of that offer roughly every six months. Turning down the biggest check of your life is usually a cautionary tale. But for the Terry's, it was the best financial decision they ever made. And they didn't say no because of the number. They said no because the number didn't feel like anything to them. That's incredible. Good for you. I mean, really, very phenomenal story. So you turned down an acquisition for 12x in 2015 because your goalpost you mentioned was not aligned with the payout that you were looking at. Is that what I'm hearing correctly? What we found out is that when we heard the number,

19:28it was a great number. And it was obviously more than fair. And it was a reputable company that we learned then, or at least I did, that that's not what I was interested in. I loved running the business. We loved our employees. We didn't want to sell. And that the, but I think it took that dog and pony show that Kathy talked about for me to realize that. Yeah, I think for me, it was two things. It was one validating our validating Patrick's vision, right? Like it was great to know that, oh, well, we have something of real financial value. Like somebody wants this. So of course, you want validation. And that was great. And I think for me, the second thing was realizing that what we've built mattered more, the culture piece, mattered more than what somebody was willing to pay for it. Because. And you weren't willing to risk the culture piece and exchange for the payout. Like that is when I realized, oh, we got to protect the culture.

20:34We have to protect what we have built. And, and because that was my biggest, aha moment was, okay, we can run, we can go, we can take this check and run off and go buy our island. But who's going to take care of our employees that we love that are family now? Who, you know, they're not going to do industry loans anymore. They're not going to bake or take cakes anymore. They're not going to give back to the community. They're not going to donate every quarter like we do. You know, they're going to start selling frozen french fries. Oh my god, what in the world? You know, like my brain just started thinking like they're, you know, it's going to be, well, it'll be different. It would be more about like maximizing profit, right? You know, the quality may go down, the prices may go up. Like everything that we built our legacy on, what could potentially go away. And so for me, that was when I was like, whoa. So I think it did to, it validated him and it made me

21:34realize how precious this thing that we had built was. So here we have a couple staring at a nine figure offer and they're asking each other, what is there enough? Founders almost never get to have this type of conversation. Let alone an opportunity of an acquisition that size. You can't have the conversation with your employees and most of your friends probably can't relate. Hampton is a private community of founders and CEOs where we have tried to solve this problem. That question gets asked honestly and constantly how much is, quote, enough. This show exists to take those private conversations public. If you're sitting with your own version of this decision, you'd fit right in. Go to joinhampton.com and see what this is all about. Yeah, and I think that's commendable. I love that story for both of you because newlyweds starting a business that really seemed almost impossible, Kathy. If I can put words into your mouth, you're like, oh, that's cute. That's a fun idea. And then turning it into 11 locations and a nearly $100 million acquisition offer.

22:37That's a big step in a direction that, correct me if I'm wrong. Did you believe it could have ever gotten there at the beginning? Not me. I am. Well, you know, it's funny. I never thought that far out. I literally hit a nice thing. I thought one restaurant to the next. One burger stand to the next. One burger stand to the next. I can remember stunned to find out at one point that we had 300 employees stunned. In my mind, how many did you think you had? 80 or 90? I mean, I, well, okay. When you're just concentrating on the next thing and I say 80 or 90, hell, I didn't have a, I didn't have a clue. I would, you know, you're just, it's, it's, it's, you know, it's kind of like the frog of the water. You know, I'm just slowly, it's the concentration. It's just happening over time. And I'm not worried about anything else. I'm not, I'm not thinking about, you know, the yacht or the, or our private airplane.

23:37I'm thinking about, okay, where's the next location? And if I get up at 5 a.m. and drive around when there's no traffic, maybe I'll find it. Yeah, I knew there were almost 300 employees because I was baking cakes for every employee. Yeah. Every single employee you were baking a cake for? Until we got it to around 300. It was, we still do, we still do. That's like a cake every day almost. Yeah, oh, it was. After I, I quit at nine years. And then I passed it on to Susie, who now is our official birthday cake baker. I mean, likely now with locations in San Antonio Houston in our commissary helps her out, but Susie still bakes for cake cakes. And when you apply for a job at petaries, you tell them which of these cakes would you like on your birthday? Wow. That's so special. Do you, I assume you get a lot of feedback from employees, like thank you cards and how does that make them feel? Well, I think what happened, what we found out is that for a lot of our employees, that is there, that is how they celebrate their birthday. There may not be a cake. Wow.

24:37And so I used to deliver the cakes. So I would come home from work and Kathy would hand me two cakes and I'd be back in my car driving. And I remember one night thinking, you know, this is a pain in the ass. I've worked all day and now I'm driving out to one of the locations. And we had maybe an hour plus about it. Yeah, we had a rule back then that we would sing Happy Birthday really fast. But we would sing it because there were cars in line and people were ordering. So I'd like to cake and everybody would sing it, at three times the speed and the person would blow out the candle and we'd take the cake in the back and they'd enjoy it that night. And what I saw that evening was camera phones coming out and people taking pictures. And I realized how important it was that it mattered. And that changed everything for us. And to this day, maybe I'm a better CEO because I can tell you how many employees we have today.

25:38So we had to do that. We have 1,800 and we still bake everyone a cake. So you turned down 100 million in 2015. You've grown five times, at least in headcount since then. Where does that bring your overall net worth today? Business included and yeah, personal net worth and then liquid net worth as well. So from a personal standpoint, for the first 10 or 11 years, maybe 12, I barely took a salary. I took just what we needed to pay our bills, our personal bills. We were so focused on growing the business and at a rate that we wanted to without bringing outside money in, we could always get along from the bank. It was obviously limited to how much we could borrow that we didn't have any money. I mean, personally, we just had it all in the business. And a buddy of mine, much smarter than me,

26:41when he found that out, he literally sat me down. He's like, you can't do this. You've got a wife and two kids and you can't just not have any money in your account. So we found a bank who said, you can take some money out if you want. And so we took around a little less than 10 million out and put that sock that away in case something ever happens or for our girls, for Kathy. I don't, we don't really spend a lot of money. That's the only money we've ever taken out in all these years of Peter's in 21 years. And then just recently in June, we just transitioned, or started a transitioning to an employee ownership trust. So we did, and so now the whole goal is to start selling equity to this trust. So we did do an initial seller's note. So we gifted shares to the trust and sold shares to the trust. So that will be our way to exit out of the business. So we decided not to sell to a strategic buyer,

27:45private equity, we decided a few years ago that we were gonna try to find another way. You know, we needed this a session plan, right? And so that was kind of my job, my self-assigned job for the last five, 10 years. Once we got that offer, that was when I realized, we have an asset, I got to figure out what we're gonna do with this. And so I've always kind of been trying to figure out how are we going to exit at some point. So we decided to, we found this model and employee ownership trust. So we are now actively selling. So we just did a seller's note for a small, I think it ends up being about 11% between the gift and the sale. And so what it does is we sell finance it. So the business will start paying us for that equity, and then when that seller note is paid off, then we'll just sell another tranche. So that's kind of a long-term plan for us to reduce our exposure, I mean, get our equity out.

28:48But it's at a very slow pace that the business can absorb because we don't want to take on too much debt because we want to keep growing. And we also introduced profit sharing. So we wanted there to be profit for the employees to, you know, to feel ownership when you call it an employee ownership trust. So that's where we are today. But yeah, we didn't take anything out. Like Patrick said from 2000, I think it was 16 until just recently we started. And that 11% sale that comes to, I guess 20 million out of $200 million business or what does that come out to? Well, we took a reduced value, right? Because we had a valuation, because we had my, we took on minority investors. I mean, we kind of jumped ahead here, but if you want to talk, we took some minority, we took some friends of friends round back in. What year was that? Six years ago, it's seven years. Right before COVID, right before COVID.

29:48It was right until 2019. 2019, yeah, 2019, because we decided that we wanted to go into another market. We wanted to expand into San Antonio. So, you know, and this was another learning moment too for us because Patrick at the time was like, oh, I probably need to bring someone in that has that expertise, because I don't know if I can, if I know what to do to get us to another market. So, we actively did a CEO search, took us a long time, found somebody, brought him in, and that was when we did the friends and family round because we wanted him to have some capital to really expand. So, we took on minority investors, you know, I think that was a small percentage, 10% maybe at the time, and allowed him to get some capital. And so, we started expanding heavily into San Antonio. And then we parted ways with him three years ago. Two, I think, two and a come out to three. Coming up to three. And so, yeah, that was another thing.

30:50Like, we have these minority investors. How do, you know, we need to give them some kind of exit by out. So, there were a lot of things that I was trying to navigate at the time when we were trying to find what we ended up with. Every year when summer ends, you tell yourself it's finally time to start taking health seriously. But work picks up, schedules fill, and your health slips down the priority list again. Does this sound familiar? This, my friends, is why a growing number of Hampton members have been loving daily body coach. It's become an inside secret within the community for getting lean, strong, and healthy without the mental load of having to think about training and nutrition. Daily body coaches run by a Hampton member, Anthony Monica, who's also a software founder, and you feel that pedigree come through in this experience. As a customer, you get your own team of trainers, nutritionists, and psychologists to take the time to understand how you operate, what tends to throw you off, and what your daily life actually looks like. The result is a highly personalized operating system that's guaranteed to deliver results. If you want to avoid falling off restarting and repeating the same old cycle, you need a system that can work a long term, which means it needs to be designed around your existing habits.

31:51That's what daily body coach builds for you. So, if you want to transform the way you look and feel and start taking your health seriously over the long term, you've got to try daily body coach. Click the link in the description or go to dailybodycoach.com, slash money wise, and I'll connect you directly with Anthony. Because we had the minority investors. And so, I mean, some... Answer your question. So, we did evaluation for this EOT, but we sold it at a discount to the truck. Okay. Yeah, that's fair enough. So, you're 10 million liquid. If that's still the number... Yeah, or has it grown since... No, it's weird. Yeah, 10 million liquid. And then let's say 200 million with illiquid assets with the company combined. I think that's great. Yeah. Yeah. Some people will look at, you know, $70 to $100 million acquisition and think, why in the world did you turn that down? But then I hear this sale that you're giving back to the employees with the profit share and some of your succession plan.

32:52In my opinion, that's a very noble succession plan, but I would love to know you're thinking behind that a little bit more and tell me, why? Why that instead of going and selling it for... Probably at this point, much more than 100 million if you really wanted to. Walk me through your thinking. I think it all started the first couple of years that we ran the business. I think the fact that Kathy and I were in the stand for those first few years, literally every day. And when you're working side by side as an equal, actually, I wasn't equal because I wasn't as good as they were. But when you're there in a 500 square foot space and you're literally, it's 120 in this building in the summer because you've got all your friars and your grill and it didn't matter what the HVAC was doing because the windows were open. And you're sweating your ass off. And you're next to these guys.

33:55And some of them still work for us 21 years later. It changes your perspective. You know their families, you know, a lot about their personal life. You know, we established so much of our business. You know, the cake, the birthday cake started when Rosario was leaving and Kathy found out as she was leaving, it was her birthday. And she was embarrassed that she didn't know in the next day she brought her a cake and that's how that started. Didn't start from a conference room. We have a, we've had non-interest free loans for all of our employees for 20 years. That started. Really? Yeah, that started because Vinny called and said, I can't come in because my truck's broken. And I said, I don't want to work french rise tonight. I've already worked. Hey, how do I take a cab and I'll pay the cab fare?

34:55And he got, got to, and I said, what do you need to fix your truck and he said $150? I said, here's $150. Pay me when you can. So what's that look like on paper? What's the employee, you know, zero percent interest loan actually on a term. Interesting. I just looked it up. We have, we have loaned out over $900,000. Almost a million dollars. And our default, get this is, I think only $5,000 has been unpaid. So the, $5,000 of 900,000. 0.01% of that. Oh my goodness. Yeah, so it's what business. Are we talking 12 month loans or one month loans or every, every combination? We're letting them decide. So there's no, if I give you $300 and I say, I want to beg next month, I haven't solved a problem. So if it's $50 a week or until it's paid back, you tell me, because I don't want you back in the hole that you're in right now. And that's incredible. And, and you know what?

35:56It's just good business. It's just good. It's, it's more than that. If I can push back, it's more than that because you don't have to do that. And it's bad for business on paper. It's great for business because I know what you mean by that. It's of course employee retention and growth and people stick around, but, you know, an accountant might look at that and say, what are you thinking? Absolutely. By loading free money. Oh, it's so much. That's incredible. But then you, the human spirit. Then the other argument is, well, the banks pay me what in a half percent? What am I, what am I really losing here? And for me to tack on a number, well, that's just bad, that's just bad taste. Yeah. You know, that's just bad. Well, and, and I look at it as, you know, it's all about access, right? It's, you know, and we are lucky because we had access, you know, even to start this business, we had access to savings, right? And so for us, we're just creating access and opportunities for employees. You know, if, if Vin couldn't get to work and he didn't show up to work and he lost his job, then the cycle never stops, right? Like they have to be able to stay in the game.

36:58They have to be able to have stability, you know? And so the interest free loans is just a way for us to give them, you know, create access to transportation, to stable housing, to opportunities, to, you know, and that way they can stay in the game and they'll hopefully stay with us and we have career growth opportunities. But you don't have to. Well, if you want to stay working the grill, you can stay working the grill. But if you want to become a manager, I mean, our VP of operations started at the counter 16 years ago. But to go back to your original question, that's, that's where this came from. I think it's kind of crazy how casually Patrick's threw out that $900,000 figure. $900K, an interest free loans to hourly fast food employees over 20 years, in $5,000 in defaults, only 5K. That's about half of 1%. Credit card companies charged 25% interest and would kill for that rate. The most reckless looking line item on their books

37:59might be the most profitable thing they do. This is a crazy model and something that I really respect for the Terry's doing is giving their employees more than just a job. They really, they call their employees family a number of times through this episode. And this is the type of thing I think that really puts their money where their mouth is. You know, when you're working side by side and you know the people you work with, and they have stayed loyal to you, you know, we have a Maggie rule. Maggie's been with us since pretty much the first day, we second day, we opened. And Maggie's still working. She works the grill now at our busiest location. So this one's been with us for 21 years, her daughter's back working for us from other works in the dining room. And the rule is that whatever we do, whatever decision we make as a company, we never disrespect Maggie. That's the, or her position. Yeah, yeah, and that I like that a lot. The people that are there.

39:00So you have a perfect example. Before I took back the company, the office went on an outing on a work day. And with, to a vineyard, to a vineyard, an hour and a half away, and they had a nice lunch and they've toured the vineyard. And it was a group thing for the office. And they had a bus the whole bit. And then they got back and they posted some pictures on Instagram and Facebook and whatever. And in my mind, Maggie came home from pulling a double because she does that a lot. God home took her shoes off, sat on her couch, scrolled through her phone and saw that her corporate outing, the company that has got her back, that are here for the accounting and the HR and the IT and the maintenance, all those people that are supposed to have her back, were drinking wine that day. I'm celebrating. And that's disrespecting Maggie.

40:03So we don't do that around here. Yeah, that was last week. I love the way. Go ahead, Kathy. That was the last trip to the vineyard. I love this concept, the Maggie rule. Every decision the company makes gets tested against one question. Does this decision disrespect the woman who's worked the grill since the day two? 21 years. Her daughter works there now. Her mother works the dining room. And when the profit sharing checks go out next year, based on purely how long you've stayed, Maggie will get the biggest one in the company. Every business has a Maggie. Most org charts don't recognize that. Make a Maggie decision and understand what your decisions as a company affect and how they affect the most tenure employee, but also maybe someone who's very far down on an org chart respectively. Your decisions affect everyone in the organization. I was going to say, the way you both think as business builders is much very unlike a typical business

41:07builder. I mean, you're thinking of the human and the business builds, but the human is first, second, and third. The business is almost deprioritized in light of the human that you're really serving. And from a business standpoint, we recognize this has to be a two-way street. And so what we expect from the employee, you know, in the stand, we're going to take care of them. All in return, they have to take care of the customer. If they're not taking care of the customer, then this doesn't work. Then we pat ourselves on the back all day long for being so nice, but the business goes to hell. And so that is the expectation. And it's paid off. I mean, our revenues are increasing. I mean, the last two, three years have been 20, 25% year-of-year. Well, and the profit, you are profitable, correct? Oh, God, yes. I wouldn't do this, I'm unprofitable.

42:07Sure. I mean, it's incredible. Do you know what your profit margin is? We run, I'll tell you that our corporate, our corporate runs about 16%. Wow. And we're incredibly efficient. You know, our GNA is, sounds like it. Our GNA is below six. And we build two restaurants a year. And to build a restaurant these days costs over $3 million. So, you know, we're an expanding brand with a GNA below six. And a lot of it is just, we're here. We're the efficiency and looking for literally every penny. I would love Kathy if you could put your legal hat on for a second and explain employee ownership trusts to me like I'm an idiot. And you don't have to pretend because I literally have no idea what they are.

43:10So, I am an idiot in this situation. I would love to just understand the actual concept of it and why you're choosing to do it. A little bit of context before Kathy takes over because I'd never heard of this either. An employee ownership trust is how the Terry's are exiting a company doing between $150 and $200 million in revenue without ever selling it. By Kathy's count, about 100 businesses in the entire United States have done this. She's not a lawyer. She's a former paralegal who spent years figuring all this out herself. And she explains it better than most attorneys do. Listen for the difference between this and an ESOP. That distinction is the entire reason that I think the Terry's culture survives them. And what they intend on surviving them many decades or even centuries longer than they're around. Right, right. Okay, well, it's a really new tool that so don't be surprised that you haven't heard of it. It's a big thing in the UK. The UK, there's a lot of employee underships, a lot of DOTs and there's a lot of government, support, tax benefits. And it's fairly new here.

44:11I mean, I was just at a conference and my understanding there's like 100 businesses that have transitioned over to it. Total. Total in the US. Oh, okay. Well, it's very early on. I mean, there's ESOPs that have been around for a really, really long time. Part of ESOP, yeah. Right. And that's what I assumed. This is much different than ESOP and I'm curious why this instead of an ESOP. Right. So an ESOP is, there's great tax advantages for an ESOP. But it's also, there's a lot of bookkeeping, a lot of regulation. I mean, it's regulated by the Department of Labor and, you know, Arissa, because it's a retirement plan. So basically, the difference is the ESOP is a trust and the EOT is a trust. But if we were selling shares to an ESOP, because it is a same tool to use for exiting. So we could sell our equity, sell our shares to the ESOP, but those shares get given to the employees and they're owned by the employees. And it's a retirement. The employees don't get any financial benefit

45:11from those shares until they retire or they leave the business. So if they leave the business, the business has to buy those shares back. So every year you're having to do valuation. So it's got a lot of bookkeeping, right? You're evaluating every year. You have to have a lot of capital, a lot of cash on hand, because you're buying shares as people are leaving. And that just didn't work for us. I mean, our business, we have, you know, just the complexity of trying to buy shares back and forth. But also, it didn't, for two reasons. One, our employees need money now. So the financial benefit wasn't there for short term. And also, it doesn't protect the culture because after an ESOP gets 51% of the share of the equity, then their trustee, they're motivated by, you know, maximizing the value of those shares. That's what their job is.

46:11And so if somebody comes in private equity or somebody comes in and gives them a crazy offer, they got to take it. So there goes your business. But it's good. I mean, I'm not downing and dogging it because at least the employees get some benefit out of that. Like if they get paid, you know, if they sell, then the employees, their shares, they get out. But for me, I was trying to protect that culture. So the difference, so what an EOT is, is we're selling shares to a trust, but the employees don't get any shares. It sits in the trust. But what the trust does, it's protects the purpose. So you write your purpose statement in the trust for us. It's to always be independent. It's always to create opportunities for employees if that would either be profit sharing, if we have a good year, interest-free loans. You know, any kind of program, you know, 75 years from now, if somebody figures out another way to support employees, great. But, you know, also in there is always providing high quality affordable food.

47:12I mean, food may look different. It may not be a burger, so to speak, who knows? But it then needs to have the high quality, affordable. They're always are going to have to serve the community. Like we have a donate, we donate one Saturday every quarter. We donate all of our profits from our stores to a local nonprofit. I mean, that's not written into the purpose, but it's protected by always being part of the community, right? So we lock in our culture and our purpose for perpetuity. So that trustee protects that culture. And we have a trust-dureship committee that is made up of employees. And they are stewards of our business. So when we exit out, you know, it may take us a long time to sell this equity. I mean, how we may be dead and our kids may be selling equity to this trust. But there will always be a stewardship committee that makes sure management is operating with those principles. So they don't manage the business and operation.

48:15They just oversee the stewardship. And so that committee rotates and our kids, I mean, Patrick has a founder role. We have a founder role in there. And so when our kids get old enough, they can serve on that role. Their grandkids can serve on that role, their kids. So it just locks in what is precious to us and what. A legacy in many ways. Exactly. That was what I was looking for. Because I look at this as we left our business to our family. It wasn't our two girls. It was to our family. Because we consider 1800 people that we've just expanded our family. So. Yeah. And because you mentioned your two girls, do they get any direct revenue from this, I guess, let's call it a liquidity event? Or is it all from the trust being a part of the ownership of that over time? Well, we have, we set up a trust for them back in 2015,

49:1616, a small separate from this. Separate from this. So we have a small trust for both of them. So yes, they will at some point financially, they can sell their, if they want to, they can sell the equity that they have to the trust as well. Okay. Yeah. That's cool. That's cool. Yeah. It does. It's still very complicated, but I think it's right in line with the philosophy that I think exudes from both of you. It's like, hey, we want to take care of these people right now in front of us, but also, I mean, you're talking in, in, in, in centuries, 75 years from now. I mean, so you expect this trust to outlive both of you and potentially your children and their children. Is that what I'm hearing? I think that's the hope. Yeah. That would be incredible. Really? It would be great. And, but for the financial benefit since the, since employees don't own those shares, it's really just protecting their job, right? It's protecting the customers experience,

50:18it's protecting their job. So what we did is when we implemented the OT, we also created a profit sharing program for employees. So that's where they're going to feel ownership is starting in January, February next year. If you've worked with us for over two years, you know, that's when you qualify for profit sharing. And so all of those employees that qualify will start getting checks next year. And do you split, is it like 20% of the profit among 1800 people or how do you calculate that? I'm right now, it's 5% EBITDA. So right now, it's small, but the goal is to get up to 20% in the next five years. Right now, but only 400 qualified right now. Right, only 400 qualified. It's easier to work for at least two years. So sizable checks in most cases, I would imagine. Absolutely. And the most interesting thing about how that's decided was based solely on longevity. So Maggie's going to get the biggest check.

51:20She's been with us the longest. Doesn't matter what her position is. That's what it's based on. So we're trying to reward the people who have stuck around the longest. Yeah, it's more about contribution than less about hierarchy. And where does all of this leave you when the succession plan is done? And everything's in the trust. And you're no longer operating the company. What is retirement, I guess I'm putting quotes in that. What does that look like for the two of you? Well, Kathy has done this program. But on a day-to-day basis, she's really not in the office. I mean, she comes in and it's the white night. And in the OT and profit sharing and dashes back home. And she'll dash back in. I'm sure along the way for something else. I'm here every day. And right now, I'm in good physical condition. I like doing what I'm doing. I don't see retirement anytime soon. We have a sophomore in high school.

52:22So it's kind of like we're not going anywhere. And so I think at least for the next three or four years, I don't see any changes. I think at some point, somebody will step in. I'll step back and let a gradual change of the guard happen. But it's not easy. It's not easy when you've done this for 21 years. And you're going to do it for three or four more. You don't walk away so quickly. They still need my help. I still can do it. But I have to say it's easier today than it's ever been. I have to say that the first three years were really, really difficult. And so when I look at that, I think, God, this is a cake walk what I do today, compared to what we do to build where we are. Yeah.

53:22But I think the goal is to reduce them the amount of time that you're here, spend more time. We have a place in California. So we do like to get out of the Texas heat. So spend more time there. And yeah, I mean, it is, this has become our identity. So it is kind of hard to think about what do we do after. But yeah, I mean, we'll see. I don't know. Where do I have to just see? I talk to founders every day and I think a lot of them resonate with that. Once you build something for 10 or 20 or 30 years and you put really your life into it, it does become a part of your identity. It becomes an important part of your identity and thinking of that maybe changing down the line. I mean, it's a challenge, I think. I can resonate with that. And I think many of our listeners can as well. Yeah. Well, it's also different when your name's on the cup. You know, that is true. If this were Bob's burgers, I'm not sure I'd give it to him.

54:26It's not. Bob's burgers are a great show. But you're right. That is true. You know, that's funny. You're basically the real life Bob's burgers. Yeah. Yeah. I mean, I think I've probably operated quite a bit better. No. I'm curious with the, you mentioned a private island a few times. And I don't know if that's facetious or if that was actually really a thought. 10 years goes by. And the companies, all the payments are done. The EOT is in place. The company's worth, let's say, $500 million. Do you still have 10 million or have you figured out a way to turn that 10 into 50 or 60 liquid so that you can go by that private island? So the EOT allows us to do that. So we can, every year, we can sell shares to the EOT, which is in fact selling shares to the company. And that allows us to pull some money out every year. And so I, so where's the private island going to be? Well, I, you know, it's really a funny thing. I just, I learned I don't want to live on an island, you know, I, I, I can tell. I don't, I need, I need a conversation and, and, yeah.

55:31Yeah. So I think, you know, California and the, and to escape the Texas heat is a, is a wonderful thing. It's not original, but it's a good idea. And we love Austin. We have a lot of, we've been here for a really long time. Very fortunate. You know, this is one of those, those things that, you know, we started this in an area south Austin, which is at the time, 20 years ago, was kind of like the last remnants of that hippie Austin that doesn't really exist anymore. But I'm not sure we could have succeeded like we did in any other community. That was amazingly, especially south Austin, was amazingly forgiving of all of our mistakes because we made a lot starting out. And we could see they were rooting for us. And, and when you have customers that are literally coming back day after day, because

56:34they want you to succeed, they see how hard you're working, how hard you're trying. It's an uplifting feeling and very hard to just walk away from the community that helped build you. I have a, we had a customer, this is how long ago was you drove a yellow cap. And I still get text from, I heard from them last week. And so when, when that's, you know, that's the foundation of your company, your business, and people literally cheering you on as you're making mistake after mistake, it's, it makes it very special. And probably one of the other reasons it was hard to just walk away. We do know our customers. Yeah. Yeah. And as I'm here when you talk, our, the audience from MoneyWise is one part business builders that I think are peers to you even resonate with a lot of what you're saying.

57:37The other part are founders or business owners of like one to 10 million dollar companies. And I'm curious, you at one point decided 10 million was enough. 100 million is not something I need right now or not something that kind of seals the deal for me. What do you know today after doing this for almost 30 years that that person at the three to five million dollar mark right now just doesn't know? Well, it depends on the person. You know, Kathy and I laugh about how it looks, how it looks how generous we might be, but it's really we're very selfish. We love this. We, we, we get so much pleasure and enjoyment, personal satisfaction out of the people that were surrounded by that there is an I and I know this is this corny as hell, but there is no dollar figure that that could match the, the feeling when an employee walks up to

58:45you and goes, man, I need a thousand bucks to get my truck fixed and I turn and go tell a counting to write a check. Yeah. Yeah. That's incredible. It's, it's what I tell people the time, you know, there's no dollar amount and no dollar figure on relevancy. You know, and what this business has allowed us to do is feel significant, feel relevant. Yeah. And, and loved my God, you know, you know, for people to openly like you and walk up and smile and say, thank you for what you do for the community, which is usually the first word out of a customer's mouth. Yeah. You know, to, and we don't live in Mayberry, you know, this is awesome. The big city. Uh, and so to have that constant wherever we go, um, to have touched that many people, um, yeah, the island sucks.

59:45This is okay. This is okay. Yeah. I talked to so many founders that would be thrilled to be able to buy a private island. Patrick got handed the opportunity to literally do just that and he realized he didn't want to. If this episode has you rethinking what your own exit is for, you have to go check out Hampton. It's full of people, founders, CEOs, people doing on average $25 million a year who are having those same conversations and questioning those same decisions about their own company and their own, you know, enough. I host this show because of people in Hampton that bring some of their stories out into the open. If this show resonates with you, go to joinhampton.com and check it out. Well, look, Patrick and Kathy, this has been incredible. I really admire both of you for the way that you've built your business. Uh, I've traveled Austin every so often. I will definitely be eating a burger. Maybe with the both of you next time in town. I'll let you know when I'm in town. And we can, we look and share a $1.60 burger. I was promised by the, by the founders that it has never increased in cost. No, I'm kidding. Payful price.

1:00:45But, uh, this is, this is, this is really great. I think there's a lot of people that are going to listen to this and even think through the EOT model. I think that's a, it's a really powerful model that I think will change in your case 1800 plus people's lives for, for decades, even to come. Yeah. So, thank you so much for sharing that with me. Yeah, and I'll just offer it up. If anybody is interested in learning more about EOT, I'm happy to sit down with any founder of Business Center and welcome through it. Careful, you're going to get like 10,000 calls. But, you know, wait, it's great because it allows you to exit, but it allows you, it allows you way to exit, but your purpose never exits, right? Like it's the best of both worlds. That's right. You're right. Well, you heard her. If you are interested in modeling after the EOT that she is the one, she's the one to talk to. Thank you so much for that, Kathy. Both of you. Thank you. This has been a pleasure. I appreciate you both. Thanks for joining me on Moneywise. Thank you.