How Will You Leave Your Business? Good, early or bad?

February 2012

A friend just closed a deal — a “carve out” from a company in the U.K. He purchased a portion of the company and turned it into a new enterprise; his new financial partner is a private equity firm. The purchase documentation contains language I found humorous but delightfully simple. (The British have a smart way with words, of course, and can make hotdish sound like gourmet food. If you don’t know what hotdish is, visit North Dakota.)

The section that handcuffs the management team to stay has provisions for its departure under three scenarios: leave good, leave early or leave bad. Only the Queen’s English can use this language for such a tough topic. Being a good leaver (that’s “leaver,” as in “get lost”) sounds pleasant enough, but it refers to the manager’s demise — as in, you die and get to keep your stock. Being an early leaver sounds bad, but it’s actually good. It refers to the manager leaving in a mutually agreeable fashion and keeping all or some stock. Being a bad leaver really is bad (though perhaps not as bad as a good leaver), because you leave in disgrace — usually fired for cause. Jeez, Beaver! What kind of leaver will you be?

Founders and business owners who sell their business might think in terms of leaving good, early or bad regarding the role they’ll play after selling their business. Pardons to the queen, but in my world, a good leaver clearly understands what role to play after the purchase, has thought about how this will affect him and his family, and is intelligent enough to know that many things will change and he’ll need to get over it. In my experience, having participated in numerous transactions, this is rare. As much time should be spent on this as on the sales price.

Let’s define an early leaver as one who understands she’s possibly best off being proud of what she built and helping during the transition but getting out of the way to avoid impeding the coming changes. She recognizes that once she sells the business, she serves at the pleasure of someone else if she stays. It’s not often that I encounter a founder who — after selling control of her company — is particularly happy a year later if she stayed. Once again, more work on the front end of the transaction can help with this.

A bad leaver — and I’ve met many — sells his business but refuses to give up control. Although no longer the primary owner, he tries to ensure that everything continues to be done his way. He believes that no one can run his baby but him. Sometimes this works temporarily, but it usually ends badly. If you haven’t read the Steve Jobs book, pick it up and focus on the Jobs/Scully fiasco.

Selling a business is an emotional thing; you’re giving up control. It can, however, be a pleasant experience as long as expectations are clear. Don’t shortchange the emotional issues. Think about whether you’ll leave good, early or bad. …

Copyright Todd Ordal, 2012

Here is a bonus article from CoBiz Magazine that I think you'll enjoy....

Which Came First: Chicken or Egg?

http://www.cobizmag.com/articles/the-answer-to-which-came-first-chicken-or-egg/

By Todd Ordal

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Todd Ordal works with CEOs and their executive teams to increase performance, resulting in better financial results, clear strategy, better leadership or a better night's sleep for the CEO…without narcotics! You can reach Todd at todd@appliedstrategy.info or 303-527-0417.