Employee-owned AVI Systems outpaces its industry

On Wednesday, several hundred customers, prospects, suppliers and employees will gather in a conference center at Target Field to spend the day learning about the latest in audiovisual technology systems.

The host of the annual affair is Eden Prairie-based AVI Systems, a little-known company that's creating a big ripple in its industry.

AVI, with expected 2018 sales of about $240 million and 650 employees, acquires electronic gear, screens and more from 200 suppliers and packages them into customized audiovisual systems. It builds and services local-to-global integrated-digital communications systems for hundreds of customers, from Medtronic to the Mayo Clinic to the Missouri Botanical Gardens.

It started with a few audiovisual projectors in the 1970s.

"It took us 38 years to get to $100 million in sales," said CEO Jeff Stoebner, 47, of employee-owned AVI, a company founded by his retired father. "And we've doubled the size of the company in about the next four years.

"The value of our stock went up 48 percent last year. We're doing pretty well in a hot market."

Employee-owned since the 1990s, AVI said it is generating 15 percent annualized growth and operating profit margins that are double the industry rate.

A trade publication, Systems Contractor News, recently said AVI Systems is the fourth-largest company in a still-fragmented industry.

AVI is consolidating through acquisitions of regional IT shops and systems integrators.

AVI has operations in 18 major U.S. markets. And Stoebner has aspirations of reaching $1 billion in sales within a decade.

Not bad for a company that once was a small piece of a Bismarck, N.D., office products firm that sold overhead projectors to area schools.

Founder Joe Stoebner moved into selling AV equipment in 1974 after several years teaching on Indian reservations and in rural schools. He hoped to make a little better than teacher pay to support his growing family.

Stoebner bought the company for $100,000 in borrowed money in 1979. Sales had grown to $1 million. He was a good salesman who knew classrooms.

The target market expanded from schools to TV stations. And the products expanded to videotape and computer accessories in the 1980s and 1990s.

The industry further evolved to digital equipment and integrated audiovisual systems. From laptops to giant screens.

The company's AV systems help schools and businesses conduct video conferences and broadcast lectures; they display internal communications, nature scenes with background music, and news and weather in offices, lobbies and conference rooms.

The company is owned through an employee stock ownership plan (ESOP) by about 700 employees and retirees.

In 1990, Joe Stoebner, planning his retirement with an idea that employees deserved to own what was then a modestly growing, profitable business, decided to sell the company slowly, financed by its cash flow, to an ESOP. The transaction took 19 years.

It made Joe Stoebner a millionaire at the same time the company grew profitably and added value for the new owners.

"Joe got rich slowly," Jeff Stoebner said of his father. "The ESOP also has created tremendous value for hundreds of others. It was a voluntary transfer of wealth. ESOPs should be trumpeted. I do think the ESOP is part of the secret sauce behind our growth and performance.

"I am surrounded by shareholders here. The financial statements are transparent. That's a virtue."

Jeff Stoebner said Chartwell Financial, an independent business appraiser, recently assessed the value of AVI at more than $100 million.

It also has enabled AVI to attract and retain employees through profits that are invested in company stock they own — on top of a 401(k) retirement plan, and pay that's competitive for the industry.

Building wealth

There are 25 millionaires in the ESOP, and 55 percent of employees have balances in excess of $50,000.

The federal tax code encourages ESOPs. And advocates say it is one of the best ways to distribute wealth, through ownership of a company, to the rank-and-file who otherwise often lack a pension or other way to build equity.

The number of U.S. employees at ESOP companies are growing; there are about 6,500 ESOP companies nationally and 280 in Minnesota.

ESOPs are not panaceas. They work best for profitable, growing companies and where the owner agrees to a gradual buyout by the ESOP that doesn't burden the company with too much debt.

ESOPs can be a powerful motivator and employee retention tool, particularly in a worker-hungry economy where employees can easily switch jobs.

"The ESOP helps support the culture," said AVI technologist Kendra Lettau, 41. She previously worked for another AV integration firm and has been at AVI for five years. "For the most part, people support each other here."

Employees receive ESOP shares in their accounts from profit-sharing, dividends and company matches of their 401(k) contributions.

Matt Johnson, 31, who works on customer contract renewals, valued his ownership at more than $75,000 after nearly seven years at AVI.

"It means an actual retirement," he said. "I'm somewhat low on the totem pole here, but I'm doing well."

Rob Buchner, a veteran Twin Cities marketer who has seen a lot of top-down organizations, works with AVI as a consultant. He believes there is a performance difference between companies where ownership is concentrated at the top and where it is integrated into the ranks.

"AVI's culture deters bureaucracy, due in part, to its ownership structure,'' Buchner said in an e-mail. "Its operating model encourages lateral decisionmaking and a certain degree of autonomy. This cultural trait was attractive to recently acquired companies."

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.