She was excited that her business, Plum Benefits, which sells discounted entertainment tickets to corporate employees, would now be able to tap into resources that only a larger operation could provide, but she was also nervous about going to work for her parent company. The acquiring business, the Shubert Organization, wanted her to stay for at least a year to help with the move and to continue running her business. But she had heard from friends who had sold companies that hanging around after ceding control can be a nightmare.
“A lot of my friends said this was going to be the worst year of my life,” she said.
Even though she knew she would have to let go, Ms. Mendelson found it difficult to play by someone else’s rules. While she stresses that the relationship was mostly positive, she struggled with how long it took the new company to make decisions and with not having a say in overall management. She had been brought on board to run her own company — now considered a division — and that was it. “I wasn’t totally surprised,” she said, “but there were moments of real frustration. And after a year, I chose to leave.”
Ms. Mendelson’s experience is not unusual. Lots of business owners remain involved after selling their companies. While the transition from entrepreneur to employee will always be tricky, owners who have had the experience say it is important to negotiate well — and be prepared for the worst.
KNOW WHY YOU ARE THERE
Last year, when Mike Kahley, founder of Grizzaffi Darby, an employee benefits consulting firm, sold his company, he understood that he would have to stick around. “The value of what we sold was tied to the value of myself and my business partner,” he said. Knowing that the acquiring company, Lockton Dunning Benefits, based in Dallas, needed him helped ease the pain of not being the boss. More important, he knew exactly what his role would be.
Before the sale, Mr. Kahley, now a senior vice president at Lockton, negotiated his new role. While he made sure that he would maintain control over his business — he is responsible for turning a profit and has some hiring and firing duties — he accepted that he would have limited say about the company’s direction. He conceded that he would have liked to play a greater role, but that was not part of the contract he signed. “I have a voice,” he said, “but I have no vote.”
Obviously, the negotiation phase is critical. That is when everything — including compensation, vacation time, what will happen to employees and how soon the selling owner will be allowed to walk away — gets determined. During her negotiations, Ms. Mendelson made sure she would have the option of leaving after a year. She also agreed on her revenue goals and on how hiring and firing decisions would be made. The contract, however, did not specify a role beyond running her own division. And when she tried to offer big-picture ideas, she said she was not given a warm reception.
THERE WILL BE CHALLENGES
Even if you think you have negotiated the best possible role, you should be prepared for frustrating moments.
In 2005, Richard Humphrey sold DrinkWorks, a company based in Newport Beach, Calif., that made custom cups for companies and theme parks, to Whirley Industries (now Whirley-DrinkWorks). He would maintain responsibility for the DrinkWorks division, its staff and revenue, and he would also become a member of Whirley’s five-person executive team. Unlike Ms. Mendelson and Mr. Kahley, he was supposed to help guide the overall business. A month after joining the new company, he went on a staff retreat where he met with the rest of the executive team to discuss a vision for the company. He left thinking they were all on the same page.
About a month later, he learned otherwise. Mr. Humphrey was leading the design of a new product and came up with an idea for a different kind of drink lid. He explained what he wanted, but the engineers came back with an existing design. When he asked why, he was told that the chief executive had made the call. “He just overrode my decision,” Mr. Humphrey said. “It started to sink in that the old way of doing things was deeply embedded,” he said. “When we looked to see change happen, the staff would say, ‘Are we really supposed to be doing this?’ ”
That happens a lot, said Josh Patrick, founder of Stage 2 Planning Partners, a consulting firm based in South Burlington, Vt. Mr. Patrick has helped many entrepreneurs sell their businesses, and he has also sold one of his own. Sellers often forget that they have to help the new owners reach their goals, he said, and the new goals will almost always be different from the old ones.
The only way to overcome these challenges, Mr. Patrick said, is to cede control. He said he had seen only a handful of entrepreneurs have successful careers with an acquiring company. When it does work, he said, it is because they become good soldiers: “They make the mental switch that they will become an employee and be part of the team.”
YOU HAVE A CHOICE
When Mr. Humphrey was asked to join Whirley Industries, he said yes. He wanted, he said, to make sure the company got its money’s worth. He also wanted to make sure his employees were looked after. And he was ready to work fewer hours and take a vacation, which he said he had not done since starting the company in 1998.
When sellers stick around, Mr. Patrick said, there are usually two reasons: They want to make sure their employees are treated well and they have big egos. Entrepreneurs love being courted by large companies that tell them how great they are — “it’s pretty heady stuff,” Mr. Patrick said.
But owners can say no. Ultimately, Mr. Patrick said, the buyer wants critical employees, including the seller’s managers and top sales performers. They do not really want the old boss. “These key people know how to be employees,” said Mr. Patrick. “Owners don’t want to be employees.”
When Mr. Patrick sold his vending and food services company in 1995, he did not join the new business, even though the new owners said they wanted him. “I said, ‘What do you need me for?’ ” He knew that working for someone else would be a disaster, so he took the money and ran. Instead of staying to oversee the transition, he told his employees that if they were fired within the first six months, he would pay them a “stay bonus” out of the selling price.
Staff was also a big reason Ms. Mendelson joined her acquiring company. Her employees were excited about the move — they would have more resources, better benefits and better prospects for advancement — but she still wanted to help them integrate into the new operation.
Seeing her staff succeed, she said, has been worth the frustration. The other thing that helped was starting to think about her next company. “The focus on my future kept things in perspective in the moments I needed to be patient,” she said. “Now I want to try again.”
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