The Biggest Missed Factor in Busines Exits
The most significant decision an entrepreneur can make from their time in business is the one where they decide to sell their interest.
It's a life-altering decision that most get wrong.
That decision often comes after years of hard work, dedication, and a deep emotional connection to the company they've built. However, amidst the financial gains and celebrations, there’s one shot to get the sale right.
And the biggest stumbling block to getting the whole process right isn’t who you turn to.
It’s the person you sell to.
Get the wrong person buying your business and it doesn’t bode well.
The most common issue I come across is the ‘leadership void’ left behind.
This leadership void has a profound impact on your staff, who can suddenly find themselves without a clear vision, direction, and a trusted leader.
When a business owner decides to sell, the uppermost thought is usually financial gain.
The promise of a substantial payout is incredibly tempting. But, is money the only factor that should influence the sale of a business?
If it was all about the money then go for it, but for the majority, the answer is a resounding ‘no’. In many cases, it’s about protecting the employees that helped you build the business and also creating a legacy.
All of that requires a leader.
A leader is a better buyer than just someone with slightly deeper pockets. Here's why:
1. Vision and Direction: One of the most critical roles of a business leader is to provide vision and direction for the company. A founder or long-time owner has a unique understanding of the business's culture, values, and long-term goals. When a new owner, driven solely by financial interests, takes over, they might lack the deep-rooted understanding of what makes the company tick. This can lead to a loss of the original vision and direction, leaving staff feeling adrift.
2. Employee Morale: The sudden departure of a trusted leader can have a severe impact on employee morale. Staff members who have developed a sense of loyalty and trust towards the previous owner may feel uncertain about their future in the company. A new owner focused solely on profits might implement changes that prioritise cost-cutting over the well-founded vision of the original owner which in turn always affects employee well-being. The result is a disengaged and demotivated workforce, which ultimately harms the business's performance and the seller’s legacy
3. Organisational Culture: A company's culture is often a reflection of its founder or long-time owner's values and leadership style. When a new owner without a strong commitment to the existing company's culture takes over, there's a risk of culture ‘drift’. It can often be subtle to begin with but before too late there’s a loss of cohesion among employees and disruption to the organisational harmony that was once a driving force behind the company's success.
4. Long-term Success: While a quick and substantial payout can be alluring, it doesn't always equate to long-term success. Many deals have an element of deferred payout regardless of any immediate payout on day one. A new leader who understands how to create impetus for growth and scale is not only more likely to invest in its future but will also achieve greater returns for the seller over any payout period. They're more inclined to make strategic decisions that benefit not only their own bottom line but also the employees and the company's long-term sustainability - and your returns from the sale.
The good news is, a leadership void can be best avoided.
The answer lies in finding a buyer who can balance the factors of:
Finding a buyer with leadership qualities is often an afterthought or missed altogether but they make for a better buyer, not just for the sake of continuity but for the sake of preserving the essence of the business and ensuring its continued success.
Get that right and the continuity, your legacy, can provide employees with a sense of security, preserve morale, and lead to a more stable and successful future for the company (and your earnout).
So, while the allure of a hefty payout can be enticing, business owners looking to sell their companies should carefully consider the impact of their decision on their employees and the company's long-term prospects. A leader who shares their vision and values is not just a better buyer; they are the key to ensuring the continued success and sustainability of the business. Money alone cannot fill the leadership void left behind when a business owner sells their company, but a leader can step in and guide the ship through the changing tides, preserving the business's essence and leading it toward a prosperous future.
Great post once again Ed.