It is sometimes difficult to know how much information to share with your management team. From “playing it close to the vest” to “open book” management, different companies have different cultures to address these issues. On top of deciding how much to share, you also need to decide when to share information. The feeling is that employees and managers cannot always put certain information into the proper context – this is particularly true for an owner’s exit from the business. Moreover, the concerns that many owners have about their employees and managers is that they will see an owner’s exit as the end of their career and will begin looking for employment elsewhere. This newsletter is written to give owners who are considering a future exit some thoughts as to how to handle these delicate conversations with your management team.
Managers Are Thinking About Their Own Future, As Well As Your
In many cases an owner’s management team is younger than that owner – sometimes by a generation. And someone talented enough to be considered for a management role is also typically smart enough to consider their own future. Also, as you well know, your talented managers are commonly being recruited by your competition. So these managers are thinking about and will sometimes eventually ask about the long-term plans for you and the company so that they can think through their own futures. So, when you begin to think about your exit planning, you have a few choices – you can either make the managers part of the conversation and process or you can exclude them from the conversation.
The Consequences of not Communicating
You have the option to not communicate with your management team about what you are considering for your future business transition. Let’s look at a few scenarios that may apply to you and your key people.
In the first case, owners may be approached by an outside buyer and the owner(s) may be thinking that a potential sale could result in a high valuation. In most cases this could be a positive sign for the company as well as the management team because buyers typically bring additional resources to help move a company and the management team to the next level. The challenge with this scenario is that sometimes owners are in a position where they have made prior suggestions, or even promises, to the management team that those managers would have a chance to one day own the business. But when the outside buyer comes knocking on the door, it is hard for the owner to refuse the inquiry.
For owners who are in this position, it is understandable that you would not want to initially be so open about these conversations. However while you are keeping the potential sale of your business a secret from your management team, you’ll be taking on a huge responsibility including doing your job at the company while also needing to gather information and take initial meetings without your support team behind you – this can be a lot more difficult than many owners anticipate. As an owner who is leading this double life, you also know that eventually, a potential buyer will want to meet the managers and interview them prior to a sale transaction being completed. At that point in time the managers will discover how far you’ve taken a potential transaction without them being in the know and it will be a hole that you’ll need to dig out of.
Some of these owners decide that they are better off preparing for how and when they communicate a potential sale transaction rather than defaulting to keeping everything a secret.
Consider Using the ‘Future Investor’ Conversation
One favorable way to introduce the idea of a possible business transition to your managers is through the language of a ‘future investor’. This communication strategy simply includes letting your managers know that, as the owner, you are constantly seeking ways to grow and improve the company. And, you are considering bringing in an investor to assist with the company’s growth. By keeping the idea broad and centered around the needs of the business (and not your personal desires), and avoiding a discussion regarding your [potential] departure from the business, managers can align with the future and growth of the company.
This conversation allows a path forward to introduce ideas such as ‘attracting capital’, focusing on the balance sheet, improving profit margins, and tracking and monitoring profitability and trends in the business.
The conversation is not disingenuous. These are things that any investor in your business – including you – should be interested in knowing and paying attention to. Buyers are investors, no matter how you slice it. So using the ‘future investor’ conversation can be a very helpful bridge to involve your management team.
As a result, this conversation may help your managers focus on the importance of current profitability and successful operation of the business in order to better position the company for such investment. By positioning the conversation with your managers in this regard, you remove the personal aspects of the exit planning and communicate the future growth and potential of the company to your managers. If you want to go another step further, you can add to this conversation an incentive plan that further aligns the managers’ interests with a growth in the profitability (and value) of the company.
The Range of Emotions that Managers May Experience
Despite the effectiveness of a ‘future investor’ conversation, some owners will still be concerned that managers will see the owner’s exit as greedy, selfish and only looking to ‘line their own pockets’. These owners often-times get caught up in the idea that cashing out of their business is a selfish act leaving the team on their own while the owner rides off into the sunset with a large payday. In reality, not preparing for the company’s future is likely a more selfish act. Owners should consider how and where their employees will benefit in their careers as they contemplate these issues.
Remember that you’ve worked hard to build your business and hopefully, you’ve made good choices when it comes to your management team. Managers who have good business sense should understand that exiting a successful business is a goal that can benefit all parties, including themselves. As long as you can find a balance between personally reaping the rewards of the sale while still protecting the future of your employees and the company itself- then typically your managers and employees will be supportive because they will benefit from the new ownership – certainly more than if you made no plans and allowed the business to fail. Or, you may have made the alternative choice of not communicating any of your exit plans to your managers.
Communicating your exit to your employees and your management team will have to take place at some point; it’s unavoidable. By strategically planning how you will position your future exit plans, who you will involve, and at what point in the transaction, the process most likely will go much smoother for you, your management team and your employees. Remember that people and businesses go through cycles and, once educated on these issues, it is typically not beyond a manager’s ability to understand this and to be supportive of your decisions, making for a more successful exit for you and your business.
Owner Dependence Index™ Report
Below is a link to a 20 minute, 40 question online assessment that can assist you in determining your owner dependence score. There is no fee to take the assessment and your customized report is sent immediately to your e-mail and kept completely confidential.
As a business owner who may be thinking through the eventual exit from their business, this complimentary online assessment may be the ideal starting point. And, after receiving your Owner Dependence Index™ report, you may want to take a follow up meeting to discuss your answers to the questions to gain further clarity on how you may have a successful exit in the future.