Treat them like owners

Hi ,

When TransDigm went public in 2006, the company had about 1,400 employees. Corporate headquarters was 18 people, and they shared office space with one of the operating units. Eighty people making and selling things for every one person of overhead.

Founder Nick Howley called decentralization “almost a religious belief,” and on the 50X podcast he explained the creed in one line: if you want people to act like owners, you have to treat them like owners, pay them like owners, and give them a fair amount of autonomy.

Three pieces make it work, and they only work together.

Autonomy that costs something. Howley was blunt that most corporate staff functions, in niche businesses, subtract value: they generate programs the operating managers don’t believe in, so the forms get filled out and passed back. Keeping corporate small meant deliberately passing up apparent savings, the shared services and consolidations that look efficient on a spreadsheet, because the entrepreneurial spirit they crush is worth more than the money they save. That’s a real price, paid on purpose.

Ownership that’s real. Cash compensation ran below market. In exchange, operators got meaningful equity that vested only when the intrinsic value of the business grew, not with tenure, not with the stock market’s mood. Over any four or five year stretch, a believer made multiples of the market rate. Howley’s summary: we almost never lose anyone we don’t want to lose. When your best operator’s wealth is tied to the value they build, the resignation test stops being scary.

One scoreboard. Everyone’s equity rode on the whole company, not their unit. Which produced my favorite detail in the entire interview: accountability came from peers, not just the top. When a unit kept missing in the quarterly reviews, the other presidents would push. “Hold it, this is my company too. We’re partners. What’s happening here?” The culture policed its own standard.

The other side of the bargain was honest too. Autonomy means owning all of it. Howley’s line: everyone wants to be president of the good stuff. You’re president of all the stuff.

I think about this framework constantly, from both directions. As an operator: do the people who actually create the results share in the value they create, and do they have the room to create it? And for founders thinking about a sale, it suggests the sharpest diligence question you can ask a prospective buyer: what does your corporate office do, how big is it, and what happened to the last team you bought? The answer tells you whether your people are about to become owners or form-fillers.

People act like owners when it would be strange not to. That’s structure, not sloganeering.

Talk soon,

Matt

P.S. When I’m not writing this, I’m buying and operating founder-led businesses for the long term at Eidolon Capital. If you’re a founder thinking about your next chapter, or you advise one who is, just hit reply. I read every note.