101. Why This CEO Chose an ESOP Over Private Equity | JD Ewing, CEO of COE Distributing

Karthik Chidambaram: Hello everyone. Welcome to a new episode of the Driven
by DCKAP podcast. I'm joined by a very special guest, JD Ewing, CEO of COE
Distributing. JD, thank you so much for joining me today. Great to have you
join us.

JD Ewing: Thank you for having me. Great to see you as well.

Karthik Chidambaram: Business is never a straight line. You always have your
ups and downs and you always wanna do some things a certain way and it
doesn't really happen. I think COE Distributing is a great story of that.
You had your ups and downs and then you took it back. I love the story, but
for the audience who are not very familiar with COE Distributing, can you
tell us, what is that you guys do?

JD Ewing: Yeah, so we are a wholesale distributor and contract manufacturer
of commercial office furnishings, and we sell to resellers across the
country and throughout the Caribbean de developing and partnering to have
our own brand office source built by OEM Partners globally. And hope and
warehoused in the us for immediate delivery and distribution.

Karthik Chidambaram: And the business was started by your grandmother?

JD Ewing: It was the original business by my grandmother in 1947 in the
basement of a bar in Southwestern Pennsylvania.

Karthik Chidambaram: But then when you guys started, you were mostly doing
retailing and you just had one wholesale operation and you were about 19
years old in college.

And then your dad said, you know what, just go take it and run it. 1989.
Yeah. So that's when the wholesale operation started.

JD Ewing: Yeah. So it was retail up until 1986. We had four retail stores
throughout the Pittsburgh region and the wholesale operation. Just started
out of necessity and we were our biggest customer for quite a lot, quite a
few years.

And when I was a sophomore in college my dad called and said, Hey, I'm gonna
close the wholesale business. I can't do that, and the retail, but if it's
something you'd like to explore and take it on, finish the semester and come
on back. And I'll throw you the keys. And in December of 1989, he, I walked
into his office and he literally tossed me the keys to the warehouse door.

That's when I got started at 19 years old and just yeah, just dug in.

Karthik Chidambaram: I'm just trying to understand this a little bit. When
you're 19 years old, you also went to work for somebody else, right? But
then you don't wanna do that, you just said, okay, you know what, I'll take
up the challenge.

What was the thought process then?

JD Ewing: Wow, that was way too many years ago to recall exactly what the
thought process was. But I think at the time the biggest effort I was
putting forth at university was taking up time and space. So there was not a
big motivation for me to continue at university.

And I enjoyed, for three summers, working in the wholesale environment. As
opposed to growing up in retail. And it- I talked to a few of the folks that
I could trust at that time outside of my family, to just bounce the idea of,
what do you think about this? And all had said, I think it's a great idea if
that's if you don't wanna be in school, don't force yourself to stay there
and go give this a shot.

And the business really wasn't much of a business for a wholesale operation
at that time. So it was very much in its infancy and hadn't really. In three
years, gained a whole lot of traction. As I said, we were our own biggest
customer and probably made up 75, 80% of the volume we were doing.

So there was a lot of work to do, but I was intrigued by it, I think is the
best way to put it, and thought that I could do it.

Karthik Chidambaram: And you guys were making about a few hundred thousand
dollars in the business then. Yeah. And you grew to $21 million.

JD Ewing: Yes. 1989 closed the books two weeks after I caught the keys.

And the revenue I think was about $225,000. And fast forward 17 years, we
had a hundred x that and ended up selling it in a rollup of regional
distributors of office furniture throughout the us and the entire team
myself and my wife Melanie went to work for the acquiring entity.

And it went well for call it two, two and a half years, where we came in as
the third largest distributor branch. And within 12 months we were the
largest in 2008, we were the only one that grew, and we were growing in 2009
until we found out that suppliers were no longer shipping us because the
company had run outta cash without sharing.

That information with those that needed to run the business. And ultimately
they filed for bankruptcy late in 2009.

Karthik Chidambaram: Let's talk about that. But before that right? You also
met your wife, Melanie?

JD Ewing: Yes.

Karthik Chidambaram: In the business? Is that how, how did that happen?

JD Ewing: So Melanie worked for our largest supplier and we met at some
trade shows in the early nineties.

And then. She ended up taking over our account for a couple of weeks at the
request of her boss, Melanie was a customer service manager and worked with
accounts across the country, national accounts like Office Depot, Sam's Club
and things like that. And they asked her to take over this account and for
two weeks.

And whatever you do, just make JD happy. And here we are, 33 years and
counting past that. And she still makes me happy every day. And we work
together side by side to grow the business, to grow it twice as we're gonna
get to. And did that for 31 years.

Karthik Chidambaram: And how does the family dynamic work?

Because sometimes this is a question I always had and a husband and wife are
the same business. It's good sometimes, you also take work and you discuss
that at home as well. Does that happen? No.

JD Ewing: Certainly bleeds over. And for us, particularly early on, it was
she and I doing the bulk of the work outside of outside deliveries.

And so there was, practically every dinner conversation, every breakfast
conversation was, what happened today? What's gonna happen? What's gonna
happen today? And so a lot of that, and in the midst of that having, raising
four kids that literally grew up in the business Melanie.

Took very little maternity leave. And she would've the kids with in as
infants side right beside her desk when she came back to work and really
started the work from home movements, 28 28 years ago and was working from
home with a dial up internet connection and getting things done that way.

The. The reality is that she's always right, even when I am very insistent
that she's not because she always was right. And that has made a big
difference in the way that we've been able to work together and carry on a
very fruitful and happy life and marriage together.

And family.

Karthik Chidambaram: A great story. I love that. I think it'll benefit a lot
of audience listening as well. But then, you guys also have conflicts, and
does that reflect in your, for the benefit of the audience, I'm just curious
to know. Oh yeah.

JD Ewing: I mean

Karthik Chidambaram: it's How does that impact,

JD Ewing: it's not all rainbows and unicorns, right?

There's there's certainly times of conflict and I think we're both very
strong minded. Individuals and if there's something that's in her field of
expertise, which was really customer service background, and then marketing
is what she really grew into. And her passion to all things marketing,
design, things like that.

If I would step into that in, into her world and would share an opinion that
probably again, what wasn't was wrong from the start she would let me know
that and I would come to see that, yeah, you know what you're right. And
I'll just. Step back outside of that line. But we always worked it out,
right?

That's I think that's the opportunity that anyone has that a work together.
But in addition to that, living together and working together and raising a
family is that you have to absolutely just be. Focused on, longer term the
short term argument, disagreement is just that.

And that's what it has to be. And if it if it doesn't stay that way, then I
think there's real challenges that that come into play. And we've been able
to address things. In that manner and really get along and look at what's
best for us, what's best for the business, and the combination of the two.

And then subsequently, as we started to hire employees and have the bigger
work family, the same thing. And

Karthik Chidambaram: and you sold the business, it went bankrupt, not really
what you expected, and then you decide to buy the business back. Is that
what happened?

JD Ewing: Yes. In, in in 10 seconds.

That's what happened. The bankruptcy piece it was, so it was August of 2009.
I can remember when I convinced myself that what was happening was going to
happen, and there wasn't anything that could be done there, there was no way
to turn it around. I had pulled some levers, made some phone calls, did some
different things that I thought, should be done. And I'm glad that I did
those things. But at the end of that effort, it was essentially I resigned
to, they, it was their company. They bought it and they can decide to run it
how they want to. And there was only one ending at that point. And that was
a tough truth to, to come to terms with, because this was.

I was third generation, the, all of the business books in the world indicate
that the third generation is not worthy and is gonna ruin the business. And
there was a little bit of that, but at the same time, it wasn't the
business, it wasn't my business anymore. But I was still responsible for, I
think we had 75 employees at the time in, in our in the Eastern Division.

And there's a lot of responsibility that comes along with that as any
business owner knows. And. To watch the business deteriorate and think about
the legacy of the business at that time. At that point it was 60, 62 years
that, that we had since my grandmother started the business.

And that was fairly impactful and and upsetting. But at the same time as
any. Business owner and entrepreneur knows that if you dwell on what the the
worst of the worst, you'll never get better and you'll never move on. We
made some some decisions that, this is the way that it's gonna be, and we
just have to guide the ship as best we can over the next couple of months.

And in November, late November, right around Thanksgiving, the the company
filed for bankruptcy. At the end of December, we were able to acquire a
portion of that business back through the bankruptcy courts and at Melanie's
push, that's what we decided to do. She was very confident that we could
turn this thing around and, restart it and grow the business in a much
better way than what we had seen over the past three and a half years.

And January 13th, I believe, of 2010 is when we officially reopened the
doors.

Karthik Chidambaram: Talking about turning it around, right? When running DC
Cap, we did we made a lot of money, and then we went down under it because I
didn't do a good job. I did not run it well, burnt a lot of cash, but then,
it's not even zero, right?

You go under zero and then getting it back up, it takes time and then, at
least to get to where you were, and then you start going on an exponential
curve, right? So I can totally relate to that, but but it took me time, it
did not happen overnight, right? 20 12, 20 13.

Around that time, I didn't have any money in the bank. Had a lot of debt.
Then it took me almost like five years to repay the debt and really
understand, right? Because as it's like a bootstrap business, I didn't know
what I was doing, made a lot of mistakes. Then you have money. You feel
like, you know what?

I bought a lot of office furniture. Okay, you, we have money in the bank.
Let's make the office better. I got a lot of office furniture. That's

JD Ewing: why we grew so fast in the early tense.

Karthik Chidambaram: It takes time to get back up, what was that journey
like, how did you from bankruptcy, how did you start slowly getting it back
up?

JD Ewing: I think one of the, one of the big steps forward that we had is
that it wasn't our bankruptcy. It was, the company was associated with it,
but we weren't in control. We didn't have the ownership and we didn't guide
it, lead it into bankruptcy. And because of the bankruptcy we stepped out of
that with the acquisition outta bankruptcy court with.

Out any of the debts. And that's an unfortunate downside of bankruptcy for
the creditors. But we weren't saddled with that. We were saddled with
opinions and, ba ill will but. At the same time we were moving forward and
those vendors that wanted to move forward with us did just that.

And we had the, I would say, enough of the key vendors the right key vendors
at the time to help us immediately get on our feet. And we outperformed our
our pro forma dramatically. We achieved a three year expectation in year
one. Doubled that in year two. So year two, we were six x what we had
projected to do in three years.

And year three continued to go up. And for 10 straight years, we grew at a
25% cagr, which we expected you. This is easy. We can keep doing it right.
And there then there were some, a lot of iterations along the way. And with
that type of growth comes challenges with employees and you're hiring to
fill a spot and that's not the right way to hire.

You've gotta work through those mistakes. And I don't wanna jump too far
ahead in, in the conversation, we're growing at that rate. And two years
into 2010 end of February, we're up 39% on top of a record year for us. So
again it's up into the right, it's skyrocketing, and that's, that skyrocket
is, it's continuing to skyrocket and then the world changes and we go from,
on that type of growth trajectory to in four to six weeks later we're down
75%.

And nobody's in the office, right? Everybody went home and work from home
was, not really understood at that point of what that would mean. But there
was nobody in the office and our businesses, you have, we need customers to
be in the office and consuming our products new people coming in,
refurbishing the offices.

Like you said, you wanted to spruce up the place, none of that was going on.
So we had kinda a a two to four week period where it was what do we do? How
do we do this? We had just a lot of challenging business critical decisions
to make at that time.

Karthik Chidambaram: And the team plays a very critical role in such
situations.

And how do you coach your team? How do you build a team and how do you get
them up for these kind of challenges?

JD Ewing: I think it's a journey that you. Have to go through and learn by
from your mistakes. And when we restarted the business the idea was to have
a different type of business than we had before.

And what I mean by that is that we were gonna really put the employees at
the forefront and make sure that they were taken care of. After, we were at
75 ish employees and, dropped to 16 when we restarted. So dramatic headcount
reduction by necessity. But we were able in the first two years to hire the
majority.

Anybody that wanted to come back, essentially we hired them back and had
built the team back up. And we thought we were putting, we thought we were
doing what we set out to do, which was put the employees first. And about
five years into the, that that rebuild I came across a book and an author
that, had me open my eyes even further. And you know what? You thought you
were putting the employees first, but you really aren't putting them as out
in front as you possibly can. And that book changed the way that we really
interacted with our employees and started to really grow our car culture and
evolved the culture for a it the employees have to be at the center of all
of this.

And how do we make that happen and allow them to grow as individuals. As
well as a part of the team on both sides of their life. On the personal
side, if they don't have personal growth, they're only gonna help the
business so much. And if they only have business growth their personal side
could be very miserable because no one's paying attention to what really
should be the most important thing to them, which their family and their
personal life.

Karthik Chidambaram: It's not one or the other. It's everything.

JD Ewing: It's gotta be everything. Yeah. And they, I think it works in
concert with each other. And if the happier your team is outside of work
fight. Default, they should be happier when they come to work. And what

Karthik Chidambaram: book is this? Which book are you referring

JD Ewing: Becoming Your Best, which is 12 Principles of highly Accomplished
Leaders.

Stephen Shallenberger is the author and met his son at a presentation and in
a YPO event and read the book. And I said I shared this with the team shared
it with Melanie and our executive team at the time leadership team. And then
we just rolled it out to the entire company and, to this day, any new
employee that is, that we hire, I hand write a note in a book and they get a
copy of the book. And once a year, any new hires from the previous year are
in that 12 week book club. And we read a chapter at a time. And

Karthik Chidambaram: that's, I love that. So you hand write a note and you
give it to the team?

Yeah.

JD Ewing: Yeah.

Karthik Chidambaram: One book, and it would still help change the way we run
DC Cap is how Google works by Eric Smith and Jonathan Rossberg. When I was
telling you, we went through that downturn and all that, right? So that book
really saved me, I would say, right? Because when I read the book, I also
got scared because what was written, I did the exact opposite.

And then I said, you know what? I need to really start doing this. And we
did something similar, started giving out the same book to everybody and
read out chapters as well. So totally relate to that. But I think know it
also helps, reading is very important. And I'm really glad that you guys do
that.

And I'm sure it impacts your team in a very big way, right? Because like you
rightly said, it's not just about. Being great at work, but you've gotta
take care of your family and not just family, but you've gotta take care of
work. So people really appreciate that.

JD Ewing: Yeah I believe so. And we get that feedback from our team and
we've had other books and the books that I put up for the book club reading
in the company.

I always look for something that has that personal growth slant to it, not
just a business book, it is a business book, but it's, it has the ability to
help people grow outside of the business.

Karthik Chidambaram: And you guys have a very lean team. You know about a
hundred people right now? No.

JD Ewing: 125.

Karthik Chidambaram: 125. You guys do a little over a hundred million
dollars in revenue.

Yeah. But how do you make that happen? No,

JD Ewing: We we focus on making sure that the business stays profitable. And
that's not to short staff, but we expect a lot out of our team. And I think
we set good expectations. But we also look for really good partners. We have
a unique sales model, at least for our industry.

When we started it when, back in 2010, which was all independent contractors
sales organizations, 10 99 independent manufacturers, reps and prior to that
2010 restart. All of our sales team was internal. And employees. So that's a
that's a partnership. And we did the same thing with our trucking about four
to five years into the restart.

When we were we were growing so fast, we could not hire enough drivers to
get product to market. So we partnered with dedicated logistics providers.
So we don't, I don't employ any drivers. I don't own any trucks. And aside
from our sales leadership team, all of our sales staff is external partners.

So that, that's it. One answer to the question of how do we stay so lean is
that we've decided to create partnerships in critical areas where we believe
we get a much better solution by those partnerships and not trying to do it
in internally.

Karthik Chidambaram: Yeah. Partnerships really work. So you bought the
business back and then you guys are doing well, business is growing, but
then COVID hit and not everybody's going to the office.

JD Ewing: Yeah, that was a crazy moment in everybody's life around the
world. And if you're selling office furniture it is a very powerful
situation where we were coming off of a record year and through the first
two months of 2020 we were up 39% and thinking, this, that rocket ship is
gonna continue to fly up into the right and COVID hits and four weeks later
we're down 75%.

So we've got that huge. Drop in business. And we've got a a staff of folks
that really didn't have anything to do. So we had to figure out, make some
quick decisions. And I recorded a video message in in the family room of our
house on an evening and essentially reinforced our core values.

And we were not gonna lay anyone off. We were not gonna furlough anyone. We
were not gonna, cut anybody's wages. We were gonna give an extra two weeks
of PTO essentially COVID PTO on top of their PTO that they had. So if they
needed a mental day, a break, or they needed to care for someone that was
having being impacted by COVID in their family or their neighbor, they could
take that without the stress of I, I need to go to work today because I have
to get paid.

So we tried to de-stress the situation. As much as possible for our sphere
of influence, for our team. At the same time, we're like what can we sell?
Because desks, chairs, and files aren't being purchased and quickly
identified plexiglass. So sneeze guards as they were originally referred to
and through through the NAW got connected with two of the three largest
plexiglass distributors in the country.

And they, thankfully were on the East coast. We started having them make
shields and started cutting them to size made to order and created millions
of dollars in revenue from selling plastic, plexiglass, sneeze guards. And
that really created a revenue stream that we needed.

It kept us in front of our customers. For, because we had something that
they could sell because they were in the same boat. All our 1500, 2000
customers at the time were in the same situations as we were. And our goal
was to what can we do to be important to them and keep their business
running and their doors open.

And, same thing we were trying to do is keep our employees engaged and paid.
And that was a really critical pivot for us. And it made all the difference
in the world, literally for the business, for our folks and our customers.
And as that office, back to the office migration stopped and started, I
think, what, 12 times in 12 months we're.

There was a deadlines when those office refurbs came up. We were at the top
of our customer's mind because we had something that they needed in the
meantime. So that really accelerated the our ability to recover from that
75% drop. And our third quarter of 2020 was our best quarter ever. In, in a
year of craziness, uncertainty and just world catastrophe, we were able to
rebound the business quickly and not lose like many people, 50% or more of
revenue in a really difficult time.

Karthik Chidambaram: There are some great lessons here, right? But let's say
had you stayed at, just at the office furniture. I don't think you would've
survived COVID, is that

JD Ewing: it would've been we would've made the decisions we needed to
survive. Yeah. I wouldn't have walked away from it or given up.

Yeah. But it would've looked like a much different company. And we would've
had no doubt, would've had to lay people off and change people's lives. And
that was one of the things that that I am as a business owner, entrepreneur
and, a leader of people I wanna make sure that the only way I change
people's lives is for the better.

And not for the horse. And that pivot allowed us to make that happen in a
really difficult time.

Karthik Chidambaram: So the pivot, the new product line, do you still sell
the product?

JD Ewing: We still unbelievably sell a tremendous amount of plexiglass
shields. And there are dividers on, on benching workstations and things like
that.

But it still amazes me of how many of those we sell.

Karthik Chidambaram: And like that, you'll still keep looking for new
product lines to sell? Yeah.

JD Ewing: Yeah. A hundred percent. Yeah. We one of our core values is
innovation and a lot of innovation in the products that we look to develop
and and bring to the market.

Karthik Chidambaram: And just talking about office furniture, do you think
the demand for office furniture is gonna still be the same as it used to be
pre COVID? Do you see a drop or how is

JD Ewing: that? I think the industry has definitely been affected and
there's I don't think there's any really good understanding of what the
demand has been or is right now.

With as the world calms down, and that's a relative term because the world
is anything but calm. But for our business in our vertical. I think it's
becoming a little bit more clear and there's still, there's the slight
uptick in back to the office. You've got big corporations that are pushing
that and trying to get people back in for collaboration efforts and to fill
out their their physical footprint that they're committed to.

But the, the work from home, I don't think goes away at all. And we've had
to look at products that fit in that environment. Capture some of that.

Karthik Chidambaram: And a few years after COVID is when you desired, Hey,
you know what? I'm gonna make the company employee owned esop.

JD Ewing: So that was call it two years ago started on that journey and
yeah, so 2000 24 had looked to what does it look like what does the company
look like five years from now for Melanie and I.

We with four kids, three of which had gone on and found their passion and
were doing their thing. They grew up in the business, worked in the
business, and but weren't coming back. And the youngest was still in high
school and we made a decision that it's now would be the right time for us
while we can make good decisions.

And I ran a dual path of evaluating private equity. Potential strategic with
an investment bank, and then on my own with some help from ESOP experts.
Looked at the ESOP path and for six to eight months just evaluated the the
options for each of those potential exits. And at the end of the day.

ESOP was the clear choice for me is that's the right thing to do for the
business the business continuity piece of it. So very, really no disruption
other than, there is a transaction and but I'm still, the CEO my president
is in place, still the president, and, everything from one day to the next.

And now 14 months later is still the same. Whereas with private equity.
Everybody knows that's not the case, right? Something changes. And the, we
wanted to preserve the culture and make sure that the business was
continuing to operate on the same values and with the same leadership.

And we were able to achieve that with the esop.

Karthik Chidambaram: I'm sure the employees are excited as well, and they
love this ESOP culture.

JD Ewing: Yeah. I think, one of the things people ask me is, do you see more
engagement from your employees now that their owners in an esop? And my
answer to that is not necessarily, but that's not a bad thing because we, I
have always told folks that we have a hundred twenty five employees that act
like owners.

That was what I shared with friends and colleagues and suppliers for years
and when on the day that we announced the the transaction I shared with our
team, I said, I've always explained to people about the business is that we
have 125 employees that act like owners every single day.

And I'm happy to tell you that today. I have 125 employees that are owners
today. And it was just like, what does that mean? So then you have to, you
have to explain that. And it's not a, it's not a simple concept to, to fully
understand, but yeah our team is the decisions that they've made and
continue to make today they do so from an, with an ownership mentality and
the care and focus of but now they do own it.

And we've what, where we've seen the engagement of. Is really, why are we
making these decisions? We have a weekly call and with the managing all the
managers of all the departments. And a lot of the questions are why did we
do spend money on that? Or, why don't we try this because I think there's a
better ROI.

So that engagement is really fun to see and we do a lot of financial
education and ESOP education constantly within the company to help folks
really be even more engaged and educated and understand what's happening.

Karthik Chidambaram: Yeah. It's not just the ownership mindset or the
culture. They're actual owners.

JD Ewing: Yeah. Yeah.

Karthik Chidambaram: And the theme of this podcast is driven. So how are you
driven, JD?

JD Ewing: It's really, there's a number of ways that drive me. One, I like
to win. So that's a big piece of it. But I said it earlier, wanting to make
sure that our team members, our employees, our employee owners continue to
grow and get better, and they have the opportunity to do that.

I can't for anybody make them get better. But we have to give them the
opportunity. We have to open up the doors. Show them the doors that can be
opened right. To step forward and get better. And I feel it's my
responsibility, my job and maybe my mission to, to put the company in a
position that, that's able to take place.

Karthik Chidambaram: JD, thank you so much for doing this. I really enjoyed
this conversation.

JD Ewing: Yeah, thank you.