Tag Archives: LifeUSA

Perseverance is the Secret to Success

Those who achieve success have one thing in common – they have the attitude that it is better to fail than to give up and quit.

There is an interesting dynamic that occurs when someone proposes a new idea, a concept for a better way of doing things or a plan for a new business venture. The nearly universal reaction to any of these proposals is negative. Everyone seems to be at the ready to offer all the reasons why the new idea, process or business venture is wrong or will fail. This type of negative reaction to something new or different can dampen the spirits of even the most optimistic person. But it is how the individual reacts to this negative environment that either kills the proposal or brings it to life.

Bob_MacDonald

Good Advice

There are a number of reasons why many people tend to be negative toward new ideas or concepts. First off, since they didn’t think of the new idea, they may not understand it. Often, they fail to recognize the need for something new. And if things seem to be working well, why would you want to change them? Lastly, many believe that since the vast majority of new businesses will fail anyway, why take the risk to do something that is likely to fail?

Those who are successful and make history in this type of negative environment are those who don’t give up—they persevere. And it’s not just that they keep trying to be successful, it’s that they can’t stop trying to succeed. They become oblivious to the negativity and press on until there is nothing more that can be done and they either succeed or fail. Their mentality is that it is better to fail than it is to give up and quit. They passionately believe that success is out there to be captured and if they have not found it yet, it is because they have not been looking in the right place, so they just keep looking.

The list of well-known individuals whose early careers were filled with rejection and failure, but simply persevered until they became successful is long and enlightening. Einstein, Henry Ford, Harland “Colonel” Sanders, Walt Disney, Winston Churchill, Abraham Lincoln and scores of others are all people we equate with exceptional success and even though their triumphs were in different fields, they all had one thing in common – they persevered against rejection and failure.

The quintessential example of perseverance was arguably Thomas Edison. Early life failures for Edison were legendary. Expelled from virtually every school he attended for being “unteachable,” Edison went on to be fired from almost every job he ever held. But Edison had one passion – inventing. No matter how many rejections received or failures experienced, he was never discouraged or dissuaded from seeking the next invention. In the end, Edison was granted more patents – 1093 – than any other individual. Not all these were memorable, but when you take into account that some of them included the light bulb, the alkaline battery, the electrical grid and the phonograph, it shows what perseverance can lead to.


The ability to persevere not only depends on the ability to put up with a negative environment for an extended period of time, but also the ability to educate and convert others to the new ideas.

When I joined with a small group to start a new life insurance company – LifeUSA – there was an abundance of naysayers. Not only was there near-unanimous negativity to the very idea of starting a new life insurance company, there was even more vociferous rejection of the LifeUSA concept of employee and agent ownership, the focus on annuity products to reward people for living, rather than dying, and the idea of competing against rather than with other insurance companies.

The founders of LifeUSA lived in a negative world from the get-go. Yet we believed in our ideas and persevered. To be successful required us to win over others with the idea that there was opportunity for a new life insurance company. We had to convince others that taking ownership in a new company was better than taking a job with an old company. Agents used to selling the old products had to be persuaded that the new products were better than the old and then taught how to sell them. These were not easy tasks and efforts to do so were constantly greeted with a pessimistic reaction. But we persevered. We did so by adopting a very simple attitude toward rejection. When our ideas were presented and then rejected, we simply said, “Next.” We firmly believed that if we kept moving forward presenting our ideas to the next person, we would ultimately prevail. We were so convinced that our ideas were right and the old ideas were wrong, we could not be deterred by negativity. And in the end, our perseverance was rewarded.

Perseverance Does More Than Help You Succeed

When you are willing to preserve in the headwind of negativity it focuses your mind on the goal even more and provides a type of perverse drive that increases your motivation to prove that others are perseverewrong. When those you have enlisted in your effort to be successful see that no matter how difficult and negative the times may be that you won’t quit and persevere till the end, it builds trust and respect that motivates them to persevere as well. When you have the will to persevere – even to the very end – it reinforces your focus on the goal and helps you understand that success will be determined by what you do, not what others say.

The lesson is simple: Success does not come easily, but it will not come at all unless you are willing to preserve in your desire and effort to find it.

Be Surprised if You Win the Lottery—But Not by Your Success

If your success comes as a surprise to you, it means you were lucky, not good.

Success is the anticipated reward for hard work and commitment to achieving an objective, but many are convinced – or at least want to be – that success is the result of chance rather than choice. Those who fail to achieve success often account for their failure by rationalizing that the success of others is due to a “lucky break.” They equate the random luck of winning the lottery with how Winning-the-Lotterymost people win success. In their mind, failure to be successful is not their fault; they just were not as lucky as those who are successful.

Likewise, there is an intriguing reaction to success that comes from some of those who achieve it. Some see success as if it is the end of the road, when it is really only a sign that they are on the right road. Others reach a certain level of success and then begin to concentrate on enjoying the material rewards. They don’t understand that real success is determined by what is achieved, not what is received. And then there are those who, once they attain success, forget what it took to get there, and begin to act as if its continuance is preordained.

These attitudes about success contribute to the reality that more people rebound from failure than survive success. What many fail to grasp is that, as difficult as it may be to attain success, it is even more challenging to retain it. That’s because success has a way of cooling the passion and blunting the drive to achieve it.

Some Are Consistently More “Lucky” Than Others

Folklore supports the “lucky break” justification for failure by often highlighting the “overnight success” that is seemingly arbitrarily bestowed on the chosen few; it’s as if they had no part in the success —they just got lucky. Yet, when you go behind the scenes, you discover there is much more to the achievement. While there may have been a dollop of luck to be in the right place at the right time, the truth is that these individuals had toiled for years learning their craft and preparing themselves to be in the right place at the right time to achieve success. That instant success may be a surprise to others, but not to them.

In 1942, a middle-aged colonel, who had spent 27 years in the Army, but not one minute in battle, was selected over nearly 400 senior officers to lead U.S. forces in the war against Germany. (His immediate promotion to four-star general was the single biggest jump in rank in the history of the Army.) To say there was an army of naysayers carping about this decision would be an understatement. Those officers who were passed over and did not get the job claimed he was just lucky to have caught the eye of the Army and political leaders in Washington. The reality is that this obscure colonel had spent 27 years in the Army developing an intimate knowledge of military strategy and honing a remarkable talent for organizational ability and consensus-building. This “lucky guy” went on to serve as Supreme Allied Commander in Europe and after the war was elected to serve two terms as President of the United States.

When Dwight Eisenhower was once asked how he was able to emerge from almost 30 years Eisenhowerof obscurity in the Army to, almost instantly, become one of the towering figures of the 20th century, he remarked, “I knew that eventually opportunity would come my way and worked hard to be prepared when it did.” Eisenhower was probably the least surprised by his success, because he made himself the most prepared to be successful.

And that’s the point. If we win the lottery, we should be surprised, because we had no control over the outcome. Winning a lottery is a random happening that is not likely to be repeated. But we should never be surprised by our success, because we can plan and control the outcome. If we are surprised by our success, it means we did not plan for it. And if that’s the case, the chances are that our success will be a random event that is not likely to be sustained. If Eisenhower had not been prepared when opportunity came his way, no amount of luck would have allowed him to be successful.

It is certainly not on the level of an Eisenhower, but in my own career I have experienced firsthand the “just lucky” attitude about success.

When the company I helped found – Life USA – overcame high odds and the multitudes of skeptics to become the success story of the life insurance industry, I lost count of the number of people who came up to me and asked, “Aren’t you surprised by the success of LifeUSA?” My answer was always the same, “No! My only surprise is that it did not happen sooner.”

For many, my response may have seemed arrogant, but only because most people are surprised when they see others become successful. That’s because they see success as a random happenstance and that others were lucky to be in the way when it came by. The doubters assume that those who attain success must be surprised by it, because they certainly would be.

And yet, isn’t it interesting that these same individuals are not surprised – and maybe in a perverse way are happy – when they see failure? The failure of others gives many a place to hide from their own failure. The point is that when you prepare to be successful – rather than just hope for it – you are more likely to achieve it. And when you do achieve it, you are not surprised; nor should you be.

ESOP – The Fable and the Fraud

ESOP is a fanciful fairytale of sharing spun amidst the props of smoke and mirrors.

I have always been a believer in the motivational power of parallel interests that are created when employees share an ownership interest in the company they work for. It puts everyone on the same page and allows those who create value to share in the reward of success. And I know it really works.

After all, I helped create a very successful company – LifeUSA – that was founded on the premise that success is more likely to be achieved using a business model of direct employee ownership. But at the same time, I have also harbored the opinion that the employee stock ownership plan known as ESOP is not the best way to achieve that objective; it may, in fact, do more harm than good. The truth is that in many cases ESOP is an acronym for Employees See Only Promises.

My concerns about ESOPs emanate from the fact that they are a very complicated way to create parallel interests: they promise employee ESOPownership but fail to include rights of ownership. Plus, there is the potential for conflict of interest, which run counter to true parallel interests.

What ESOPs do is create a synthetic form of “group ownership” for employees as opposed to true, individual ownership that is enjoyed by company founders and management. Sure, using  ESOP “ownership” as a way to motivate employees  is better than no plan at all. But these plans are often more effective at demonstrating management’s desire to have their cake and eat it too, since they engender a feeling of false promises among the rank and file.

A Growing Concern

As ESOPs have grown to include almost 12,000 companies, the federal government has become concerned with the potential for abuse – if not fraud – that can occur in the structure and management of these plans. The Wall Street Journal recently reported that the federal government is currently the plaintiff in 15 lawsuits related to ESOPs. Virtually all of this litigation revolves around the potential abuse in the valuation of company shares (often sold by company founders or senior management) purchased by the ESOP “for the benefit of employees.” The Journal reported that since 2010 the Labor Department has recovered over $240 million from companies that had abused ESOP plans, all of which involved stock valuation.

The Nuts and Bolts of ESOPs

Technically, ESOPs are defined-contribution pension plans, regulated under the 1974 Employment Retirement Security Act (ERISA). As a qualified retirement plan, ESOPs offer favorable tax benefits for the company and employees. For example, contributions made by the company into the ESOP to purchase shares of the company are deductible and these contributions are not taxable income to the employee until they actually receive the benefits, usually at retirement.


Even though ESOPs are considered a retirement plan for the benefit of employees, the assets of these plans can be – and often are – used to enrich the management of the company, create liquidity for existing shareholders and serve as a lucrative “exit strategy” for company founders. This can result in a significant potential conflict of interest between existing shareholders and the employees who are “buying” the shares via an ESOP.

The vast majority of companies that have adopted ESOP plans are private; meaning there is no existing “market” for its stock. The result? Not only is there is no sure-fire way to determine the value of the stock, existing shareholders have little or no liquidity, that is, a ready-made market to sell shares. An ESOP remedies these problems for existing shareholders by creating a “captive” market for their shares and the liquidity they desire.

But, you ask, if there is no real “market” for shares, how can fair value for shares be determined? Simple. Outside consultants are be brought in (paid for by the company) to place a valuation on the stock, the price at which the employees (the ESOP trust) will purchase the stock from selling shareholders.

Now comes the tug-of-war. Existing shareholders seek the highest value possible, while employees seek share price as low as possible. This creates the potential for conflict of interest that ultimately has triggered the government lawsuits over valuation. And it raises an even more important question: If the stated idea of the ESOP is to motivate the employees with a feeling of ownership, just how much motivation and incentive will be engendered in employees who feel they are being forced to buy the stock at inflated prices?

The next important question is: Regardless of the price that is determined, where is the money going to come from for the ESOP trust to buy the stock from current owners? The company is obligated to make annual contributions to the ESOP and these funds are used to purchase the stock, but from the viewpoint of existing owners it could take years for them to receive the value for selling their shares. Not something they are likely to want to do.

To solve this problem (it is really only a problem for existing shareholders) about 70 percent of all established ESOPs “leverage” the purchase of the stock by taking a loan against the stock. This works well for existing shareholders because they can put cash in their pocket now, while the ESOP must use future contributions to re-pay the loan. There is nothing inherently wrong or immoral with this approach, but it does Pay-Daycreate a potential conflict of interest and the actual interests of the selling shareholders and employees participating in the ESOP are not truly in parallel going forward. One side has received their reward, while the other side has the promise of reward in the future.

Another potential conflict of interest arises when it comes to voting the shares of stock. Even though current shareholders have been paid for their stock, management of the company often controls the voting power of shares held by the ESOP but not yet allocated to participants, and that action that could take years. Again, there is nothing illegal in this type of structure, but when thinking of parallel interests and the motivation that real ownership provides, it leaves a lot to be desired.

If the existing owners of a company are seeking a way to cash out or create liquidity in the most tax-advantaged way, then an ESOP is the answer. But if management really believes that the way to enhance the total value of the company is by putting the interests of the employees in parallel with the interests of the company, then there are simpler, easier and more effective ways to accomplish that objective than using an ESOP.

So what are some of the ways to build real parallel interests between company founders, the company and employees?

First off, at LifeUSA, all employees and sales representatives as a condition of employment were required to use 10 percent of their gross pay to purchase new stock issued by the company. If someone was making $25,000 they were required to buy $2,500 of LifeUSA stock. Since the stock of LifeUSA was not publicly traded, the cost of this new stock was pegged at the same price the founders of the company paid for their stock.

Second, there was only one class of stock – common voting stock – for all shareholders. This meant the CEO of the company and the newest employee both owned the same class of voting stock, purchased at the same price. The CEO could not benefit from his stock unless everyone in the company could also benefit from owning their stock.

Thirdly, the happy outcome was that everyone working at LifeUSA was a real, direct, individual owner of the company. This may not have been the most tax-efficient way to spread ownership in the company, but it was simple, easy to understand and in pure parallel.

Just in case you might wonder, LifeUSA moved from being a start-up company in the life insurance industry to one of the fastest growing and most successful companies of the 1990s—a vivid testament that true employee ownership does, in fact, motivate employees to work harder and produce stunning results. In 1999 — 12 years after its founding — Allianz SE purchased LifeUSA for a value of $540 million and every single one of the 800 employees working at LifeUSA received a share of that purchase price. l

More times than I would like to count, I have been told that the LifeUSA model would not work for other companies. I agree that it would not work if you did not really believe in the concept of true shared parallel interests and didn’t want to work at it. But for the most part those comments come from the non-believers, the greedy and the lazy.

There are other ways a company can gain the benefits of parallel interests created by employee ownership without taking on the complexities, complications and potential problems of an ESOP. From my perspective and experience, the best way to motivate employees to work hard for the success of the company is to develop a plan that gives the employee both the feeling and the benefits of being an owner. And the best way to do that is make them real owners.

And the Moral of the Story …

I recognize that reading the ins-an-outs of an ESOP plan can be tedious and boring, but that’s the point. If you are an owner of a company and, deep in your heart, you really want to find a way to create liquidity for yourself and even create an exit strategy, then the path for you is to pretend that your motive is altruistic and that you want every employee to enjoy the benefits of ownership. And the best way to do that is to create an ESOP.

On the other hand, if you really believe that you will gain more value by sharing value; if you believe that building true parallel interests means creating a plan under which no one benefits unless all benefit, then you will eschew any thoughts of the fable called ESOP.