From an Attic to £80M: Tom Glanfield Gave Away Half His Business and Made Several Staff Millionaires

Recruitment Mentors Podcast

Tom Glanfield discusses his journey building LHi Group from an attic startup into an £80M recruitment powerhouse. He details a radical equit

Key takeaways

• Tom Glanfield implemented a scheme giving 50% of LHi Group's equity to staff to align interests.
• Equity was distributed via 'units' based on year-on-year GP growth rather than fixed percentages.

Main topics

• Equity distribution strategies
• Employee Ownership Trust (EOT) mechanics

Notable quotes

Equity is only worth something when you want to and can sell it.

Conclusion

A masterclass in using radical transparency and shared ownership to bu

Transcript preview

Speaker 4 (0:00) Tom, welcome to the pod. Hey Hisham, thanks for inviting me on or as if I invited you down to the Sandbanks build. I definitely proposed it. Yeah. Really cool to be here, haven't been here before. One of the things that I've heard you say loads of times and also doing the prep for this and definitely getting to know LHI a bit is this real core belief it seems that you have around 100 people staying together to build one recruitment company. you'll have a much higher chance of building real exit value that everyone benefits from versus those same hundred people all splintering off starting their own separate firms. Talk to me through why you believe that so strongly. That really is at the core, I think, of this story. Yeah. Well, I mean, if you think about how Speaker 3 (0:39) many registered recruitment businesses there are in the UK, I think it's 95 % of them are less than 10 people. The whole thing about recruitment is if you can scale, it's relatively cheap to open your own recruitment business. But if you had 100 people in a company and you gave equity away to all the staff, so everyone had equity in the company, that can be worth a lot of money if they're all billing. a certain amount. But if 100 people all left, started their own business, you had 100 different businesses, all those businesses wouldn't be worth any money at all, individually. So I think by keeping everyone together and giving out equity is Speaker 4 (1:15) a way to create big value. And give me a bit of an idea on the timeline on this. So you launched in 2002. When did you actually start giving equity away? It Speaker 3 (1:24) was... Quite early on, I did it all wrong initially and I learned from it. Not wrong, I just had to change my scheme as I Speaker 4 (1:30) scaled. Tell us about that scheme then. That's where people can learn from. So when Speaker 3 (1:34) I started the company, I was struggling because I was having to run the business myself, train myself. I was hiring graduates. I was doing all the admin, like chasing invoices, doing the clients, et cetera, et cetera. It was just going slower than I wanted. I thought to really sort of juice this up, I had to bring in... some senior talent. So I brought in sort of three or four kind of key people, one in contract recruitment who I had no experience of contract recruitment, one just very good perm leader, one just amazing all out perm biller. And I brought them in by actually giving them, which sounds ridiculous, 10 % each. Whoa. So they could get 10 % of the business based on targets over a five year period. So it's like 2 % per year based on targets. Because when you're small, you have to give away a lot of people to want to join. Otherwise, like if you gave like someone, I give you half a cent of the company and you're 10 people strong, people are looking at it going, yeah, well, if I'm going to take that risk, I'm going to leave my business for you. The reason I'm leaving a bigger business to join your business is to get equity in that company. I think there's quite a few issues with that model is you have set equity pieces that people are getting. And it's either in relation to a target, which they either completely smash or they just miss it by. So they miss it by 10 grand. So it's 200 grand a year target to get that 2 % or whatever. Do you give it to them? Do you not give it to them? Yeah, it's quite hard. And if you give it to them and then you get someone the following year who misses it by 50 grand, then they'll complain, you gave it to her, but you didn't give it to me and you're favoriting someone. So it can be really hard. So if someone even missed it by a grand target, you have to say no, you're not getting any equity. And then they're massively demotivated. And then you get issues where if you're on the same equity scheme, getting 2 % each per year across all four of them, then if one of them absolutely smashes it, they're like, Speaker 4 (3:17) I should be getting more equity than everyone else. So it causes all these issues. Do they stay with the business then or no? Yeah, Speaker 3 (3:22) one Speaker 4 (3:23) of Speaker 3 (3:23) them was Mike Speaker 4 (3:23) Pott. So he's actually the CEO now. Quickly, what was the rough timeline of like version, let's just say version one of that sort of scheme? Was that in the first five years? Speaker 3 (3:32) Yeah, it was like five to 10 years. We just hit the fastest growing companies to work for then. So it was about... 2012. So basically when we got to that stage, I was like, well, I need to keep scaling this company. And I've already given away like 40%. So what I said to the guys, I was like, look, I got them together. And I said, look, I want to give away more equity to get more staff involved, to make the company worth more money and to make your equity worth something, hopefully in the future, because it's only worth something when you scale it and sell it. So basically I said, I value the company at this. So I will give you. I think it was like about 50 grand each at the time, half your equity stake. Wow. So I said, I'm going to give you a 50 grand check for equity I've given you for free, but you'll still keep 5 % in the business. I'm going to pay for the equity to get back. And then I'm going to use the equity I've just bought from you to give away free to other people to join so we can like keep growing it. And then hopefully make your equity worth, actually worth something because equity is only really worth something when you want to sell. I had similar schemes where I kept giving. this time because the company is bigger i was giving away one percent and a half percent to people joining but again i had these join them for like senior hires get them on board but again i had the issues of he's got one percent she's got half percent it's Speaker 4 (4:48) gonna Speaker 3 (4:48) get a Speaker 4 (4:48) bit Speaker 3 (4:48) messy the half a percent person is billing way more than the guy one percent so she's now going mental saying i want more than one percent and you always have these issues and it's really hard a couple years after that i did this new scheme it's probably our biggest thing that we implemented at LHI that was completely unique, I believe, to us. And I think it was pivotal to our success. But I basically put in place this equity scheme where people got equity units based on the growth they did of the business. So if you grew something, so if you're, say, a team leader and you're growing a team below you, we would compare your team's billings to the same period the year before and see how much you've grown. And based on that, we would give equity allocations to people. The more you grew something, the more equity you got. The less you grew something, the less equity you got because you got less equity. And we gave out equity units every half year. Speaker 4 (5:41) What's really great to hear is that you didn't have the perfect scheme straight away. That's just what's really helpful. Because someone might be in that messy bit now and actually they might just go back to the drawing board and go, actually, how can we really match up the incentives? Speaker 3 (5:53) I wanted it completely clean. So say you have 3 % of the business and you're going to this new scheme. I said, I will give you the equity units of this new scheme, equivalent to 3%. So you're on it straight away at 3%. And then you just start running with it. But the great thing about the scheme is it rewards success. So the people who are growing something consistently year on year, they get more and more and more equity. And the people who are... flatlining or doing less get less and less equity. So it kind of starts becoming this self-perpetuating, self-regulating system. And it's amazing because if someone isn't performing, no one else is complaining about them because they just know they're getting less equity. And if someone's like smashing it and knocking out the park and really growing something. And then I looked at quite a few companies at the time. So basically S3. They're different businesses. They had like real progressive computer futures, these different businesses, but they were set up as registered businesses. So they would give equity in these individual businesses. What that meant is it was quite hard to move stuff from one brand to another. And the way I did it is I did initially have them as separate brands. Each brand was a separate business. But oh my God, the paperwork, I had to have like, obviously do accounts at each company. I then had to have... bank accounts at each business. And then when we set up, say in America, you'd have multiple businesses. So it became a mess. So in the end, I simplified it massively by just having three companies. So I had LHI, LTD, LHI Inc, and LHI GmbH. And LHI, LTD owned LHI Inc and LHI GmbH in whole. Each brand just became a trading name of LHI Group. So basically, I was only giving equity in LHI Group, LTD. And what I meant is everyone in the business. could take the equity and just move from one brand to the next. Say, Cypro, our life science brand, wasn't performing as well for whatever reason that year or in the next two years. We could move stuff from that brand into, say, Piper Maddox, our renewable energy brand, and they would still retain that equity. So what I wanted to do was create a system where we could move people really easily throughout the company without Speaker 4 (7:55) any issues. So mobility for me was really important. Just so people have the context. So you've spoken a lot about giving equity away, but worth saying that you had 100 % of it, like it was self-funded, right? You didn't? Yeah. So there's that. Did you sort of from the get-go say, I'm going to aim to allocate 30 % of the business to the employees or how did you? So when I did the system that became Speaker 3 (8:14) self-regulating, what I actually did was I gave away 50 % of the business to staff. The reason I did that is I wanted it. Very much the marketing message, because I always kind of think at the top level of marketing as well, being it's a team, it's me and the staff equal. And I thought that was quite a powerful message to have. Not it's like 80 % owned by the owner, you know, it's like 50-50. As the company gets bigger, the multiples you sell it for become bigger. So say when you're small, the multiple is say a four multiple. And when you become quite big, it's say an eight multiple. In my head, I was saying to staff almost like, this is almost like me giving you 100 % of the company because we are... regretting the business. It's like you having your own business at a four multiple instead of 50 % at eight multiple. Speaker 4 (8:56) Was there any moments of regret of like, oh my God, I've given away 50 %? Like, was there no? No. Okay. I Speaker 3 (9:03) always had like a real goal and a vision. To me, it was really important to see it through. Otherwise, greed can take over, right? And stuff like that. So basically, I was giving 50 % away. To me, I was coming to a 5 million plus EBIT. I was saying to staff, once you get... to a 5 million plus event, we will look to sell the business. We'll entertain offers. So I wanted all staff to have between 50 % of the business. So they're excited about selling. I've seen so many companies where they haven't given out equity. The owner's pushing towards the sell. Everyone knows they're trying to sell the business to bugger off and everyone leaves motivation. Whilst this is like, actually, everyone's really excited. What I did well was I really mapped out what we need to look like. how we're going to get there. And I clearly communicated that to staff. So I was like, we need to get to at least three office locations internationally. We need to have at least three brands, non-competing and in totally different areas. This is to make the business robust. So if say, Renewables was doing really well, you can move people into it. Or if Renewables started doing really badly, you can move staff from that brand into say, Cypro or to IT. And along the way... I will eventually step away as CEO because I think there's quite a reputation recruitment, certainly as an industry, that if the original owners sometimes step away, the whole business starts falling apart. And that we also need to get to over 100 staff in headcount to be a kind of robust business. So as we kind of grew and we opened offices and we opened different brands, it's almost like everyone could see my whole plan unfolding in front of them. And then as I stepped away as CEO. Instead of people going, oh, Tom stepped away. He's going every day now and playing golf and we hate him. They're like excited. And also then I then got to promote Jim to CEO. We've got this real thought process in the company of succession. And because everyone has such good equity in the business, everyone almost cares more about the business than they do themselves and where they're going. Because the money they can get from it has been so much. Speaker 4 (10:58) I know it's hard because the plan worked for him. It was a successful outcome. Once I got Speaker 3 (11:02) to five million EBIT, I think what you're indicating is it could have been quite easy for me to regret giving away as much equity as I did. But you also got to remember that's what got me there by giving away the equity. Also, a lot of people say, instead of selling it, why didn't you just... Because you gave away so much equity. That almost would be better for you to not sell it, keep it and pay yourself. If you're doing a 10 million EBIT, pay yourself like 8 million a year. every year for the rest of your life. But it never works like that because if I did do that, staff would quickly see I'm not selling, I'm just milking it and they'll start leaving. And I always had this paranoia that in recruitment, it's a bit like a premiership football team that once it starts sinking, everyone starts jumping ship. It's quite fragile like that. I always wanted it, everyone thinking it's progressing forward, it's moving forward and we're heading towards a sale and then we're going to do a sale. And that also builds trust in me. And as soon as we hit that five million EBIT, Speaker 4 (11:50) we sold. From my conversations, If we're inside of a recruitment offices that had a similar scheme to LHI, I think there's something that if around how much they were actually giving away, because it might have been just 5 % or 10 % or small percentages. I think that's the thing to highlight there. And then as you just said, you might have had maybe moments, but you was like, well, actually, like we would be nowhere near where we got to if I didn't have the team, if they didn't get bought in the 50%, all of that. So it's all part of it. Speaker 3 (12:15) Yeah. Speaker 4 (12:15) If recruitment leaders are listening. and they want to get that wealth creation event is maybe actually taking a step back and going, actually, that the incentives really do match up or actually, like you just said, where a lot of people thinking going, ah, they're really driving this exit because they just want out and they're going to be the majority people that benefit. Which is fair, they're the founders, right? But I think actually it needs to be a bit more closer to where you guys got to, which is 50 % that is a substantial amount of equity. I think that's why you'll hear a lot of people give away equity in recruitment companies, but actually sometimes it often doesn't really materialise into anything. And I do think part of it is, does it really galvanise the team enough if they know they've got equity units in a 5 % stake or 10 % stake? Do you know what I mean? Yeah. I mean, the way I communicate was Speaker 3 (13:00) we're going to sell for at least a 5 million EBIT, I would do a 10 times multiple. So it's 50 million. So basically I'm giving 25 million out to staff. But then obviously we sold for 10 million EBIT and smashed it. So then it was 40 million that went out to staff. Speaker 4 (13:15) We'll get back to the episode in just a moment. But first, I want to tell you about one of our long-term partners, Sourcewell. Something I hear again and again when I'm speaking to founders and agency leaders is that most teams are not short on effort. They're short on context. When outreach, dialers, notes, follow-ups, and data sits across multiple tools, your recruiters are always working from a partial picture. Deals slip through the cracks, follow-ups get missed, and admin eats the day. That's really where Sourcewell comes in. 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